mendoza will typically seek to keep port. dur = index duration. however when market conditions warrant, portfolio composition will be allowed to deviate slightly from index from time to time in order t capitalize on short term opportunitiies. in specific, mendoza is authorized to alter portfolio duration within a specified range to take advantage of anticipated rate shifts. The Q is whether this is - ‘indexing by minor risk factor mismatches’ or ‘active management by large risk factor mismatches’. i thought (still feel) this is active mgmt as he’s allowed to tamper with the duration. but answer states its indexing by minor risk factor. an comments on this?
Pretty borderline guidance on the answer. I guess they are focusing on the language with “Time to Time” and “Within a specified range” meaning it is more of a tilt. I would still view messing with the duration more of a Active mgmt
The key here is that “within a specified range”. He is allowed to alter duration by a small %, that is not an active management
derswap07 Wrote: ------------------------------------------------------- > The key here is that “within a specified range”. > He is allowed to alter duration by a small %, that > is not an active management derswap07 … isn’t tilt or alter duration by small % is a feature of active management by large factor mismatches? There is no limit to altering duration in full blown active management. Q posted by level3aspirant is indeed confusing. The only reason I see for choosing indexing is the initial goal of the manager is to keep portfolio duration = index duration. Which is not the case with active m/m by large factor mismatches. Hope CFA don’t confuse us with questions like this.
I hope this kind of question of pure definition without clear borderline will not appear on the exam. What does it mean by “alter duration by a small %” ? How many % is small % ? How many % is big % ? No clear definition at all.