Vol 6 Page 254: it says”Holding based style analysis might not reflect the portfolio going forward, particularly for high turnover strategies” ?
HBSA shows holding at point whenever you do the analysis so how is this true?
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Investment manager selection
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Disclosures in marketing material
Hello forum,
A quick one: on marketing materials it is needed to have a firm or a composite description?
Thanks in advance
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Where do you practice mocks for AM session?
As of now the official mock from CFAI has not been released, but from what I have heard this official mock will only be in PM multiple choice format. If this is the case, how are we supposed to get enough practice for AM session? I am planning to use two full-length mocks provided by Wiley and Kaplan respectively, for a total of four additional mock exams that include AM essay portions. What is your practice resource for AM session?
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Ethics/ GIPS
Hi all,
Where are you going to be studying the Ethics & GIPS from? CFA curriculum or Kaplan?
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Topic order to study
In which order are you folks tackling the topics? Seems like the order of topics has changed from last year to this year. Thanks for the help!
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Convertible bond arbitrage -
Good evening,
One of the concerns of convertible bond arbitrage is:
when short selling, shares must be located and borrowed; as a result, the stock owner may subsequently want his/her shares returned at a potentially inopportune time (e.g. when supply for the stock is low or demand for the stock is high)
I thought you own those shares, and don’t need to borrow them? Or how does this work?
Thank you!
C.
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short term rate increase means yield curve steepen??? i thought it's the other way
CFAI online practice - Capital Market Expectations - Minglu Li Case Scenario
Based on Taylor’s rule, with an assumption of equal weights applied to forecast versus trend measures, the short-term rate is expected to increase from the current 1.23%, and the yield curve is expected to flatten for longer maturities.
For further insight, Li decides to consult an in-house expert on central banking, Randy Tolliver. Tolliver states the economy is likely in the early expansion phase of the business cycle based on the yield curve and consistent with this phase of the business cycle, monetary policy is becoming less stimulative.
Q. Tolliver’s statement regarding the yield curve is most likely:
- correct.
- incorrect with regard to the phase of the business cycle.
- incorrect with regard to monetary policy.
Solution
A is correct. A is correct. The yield curve is becoming steeper for short-term rates and flattening for longer-term rates which is consistent with the early expansion phase of the business cycle. Also, consistent with the early expansion phase of the business cycle, monetary policy is becoming less stimulative.
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manager fees
Vol 6 page 274 I quote” Performance-based fee structures may also lead to misestimates of portfolio risk. Such fee structures convert symmetrical gross active return distributions into asymmetrical net active return distributions, reducing variability on the upside but not the downside. As a result, a single standard deviation calculated on a return series that incorporates active returns, above and below the base fee, can lead to the underestimation of downside risk”
I do not understand what they are trying to say here. Can anyone explain it better please?.
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bonus style fees
Vol 6 page 274 : Bonus style fees- the text says
“Bonus-style fees are the close equivalent of a manager’s call option on a share of active return, for which the base fee is the strike price. Consider Exhibit 8, which shows a familiar-looking option payoff pattern using the fee parameters defined in Exhibit 7. In this case, the option payoff is modified by a maximum fee feature. The graph illustrates three fee components: a 25 bps base fee, plus a long call option on active return with a strike price equal to the minimum (base) fee, minus another (less valuable) call option with a strike price equal to the maximum fee.
I do not get it.
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Reading 2: fair dealing and transaction allocation (Preston and Colby)
book 1, reading 2, page 87: Example 4 (Fair Dealing and Transaction Allocation):
The second part of the Comment states:
“Among other things, Preston must disclose to the client that the adviser may act as broker for, receive commissions from, and have a potential conflict of interest regarding both parties in agency cross-transactions. After the disclosure, she should obtain from the client consent authorizing such transactions in advance.”
I am not clear what the textbook is trying to explain here.
Could anyone enlighten me?
Thanks
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economics - slowdown phase curve
Hi guys,
Observation 3 The current yield curve for Country Y suggests that the business cycle is in the slowdown phase, with bond yields starting to reflect contractionary conditions.
Based on Observation 3, Wakuluk most likely expects Country Y’s yield curve in the near term to:
A invert.
B flatten.
C steepen.
C is correct.
Why so? I would have went for INVERT..
Thanks!!
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Reading 2: Conflict of Interest (Dover & Roe)
reading 2, page 152, example 2 about “Dover & Roe” selling their 25% stake in a multinational bank holding, then immediately changing their specific investment recommendation on the stock from “Sell” to “Buy”. Additionally, D&S adds the bank’s CP to its approved list for purchase.
- I assume ‘the new relationship’ relates to the approved list of purchase for CP. Am I right?
- Is there any conflict of interest when D&S sells its bank holding share while issuing a ‘Buy’ recommendation? Why would D&S sell its share while it recommends its clients to “buy” the bank holding stock?
I am thinking there could be strategic (non-financial) for D&S to sell its share.
Any comment from those more familiar with those transactions and topics?
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trading - capture ratio
Hi Forum,
A manager whose relative performance is worse during market downturns most likely has a capture ratio that is:
A less than one.
B equal to one.
C greater than one.
THe answer is: less than one, because downside capture is greater than upside capture.
I would say this question is INCOMPLETE. Underperforming during a market downturn (=falling more than the benchmark) means you have a downside capture greater than 1 (or 100%).
However, in order to asess the capture ratio, you need to know how the manager performs in the upside scenario as well.
What do you think?
Thanks!
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Fair Dealing
Hi
From curriculum:
“In addition, members and candidates may provide more personal, specialized, or in-depth service to clients who are willing to pay for premium services through higher management fees or higher levels of brokerage. Members and candidates may differentiate their services to clients, but different levels of service must not disadvantage or negatively affect clients.”
Can research providers disseminate researches (recommendation) at different times to different groups of clients based on the level of service for a particular group without violating CFAI standards ? Or researches (recommendations) always must be dissimilated simultaneously to ALL clients for whom the investment in subject is suitable by mandate ?
Assuming that the research provider disclosed all service levels to clients prior relationships.
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Material Non-Public Information and Mosaic Theory
Hello
Please check if the following statements are correct:
Recommendations based on mosaic theory (from reliable analyst) which would probably have an impact on the price of an asset considered to be material and non-public until disseminated to the general public (as opposed to select investors). The owner of this information (research generator) can act and encourage others (clients, traders etc) to act based on this information without disclosing it to the general public. A candidate or member who is a non-client of the owner (the analyst firm) of this information can not act or encourage others to act on this info until it is made public.
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Inter-market curve strategies
Vol 4 Reading 20, Example 4 (page 181),
in Sol 2 it says “In addition, the 2-year bond offers a higher spread over the German bond (5.87% for the 2-year versus 5.48% for the 10-year) and the EUR swap (5.36% for the 2-year versus 5.12% for the 10-year). “
I don’t understand what’s the relationship between the Greek gov bond yield and German bond yield/ EUR swap rate. Does the German bond yield and EUR swap rate depends on the Greek bond yield? The question asks for the pros and cons for Greek bond, so why a higher 2 year spread for German bond and EUR swap an advantage for Greek bond?
Any comment is appreciated:)
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Fixed income- ALM Portfolio statistics vs weighted avg (durations and ytm)
“With a flat yellow curve there is no difference between the 2 approaches.
In upward sloping curve IRR and portfolio duration is higher than average duration and YTM of bond “
This is because portfolio statistics reflect all cash flows to be receive- can yall please expand on this point? So this suggests that YTM or duration doesnt reflect all cash flows, why or why not?
Why is it that a flat yield curve is not impacted by 2 methods and only upward sloping yield curve is?
On a lighter note, How in the world of god do I rememebr all of this information when I have no background in Fixed income/portfolio management?
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What is "use sector overlays to control risk"?
CFAI online practice question - Equity - Grasmere Asset Management Case Scenario
The fund primarily invests in the stocks of companies with poor earnings performance that are out of favor with the market and appear to be influenced by investor behavioral trends. Stocks are selected on the basis of company analysis by Grasmere’s analysts. The fund uses sector overlays to control risk.
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Monetization of a concentrated position
The text says that monetization involves “receiving cash without triggering a tax event”.
However, when you look at the tools involved in the monetization process, especially when you hedge your position and then borrow against the collateral of the hedged position, every one of them will, in the end, trigger a tax event.
1. Short sale against the box: If the short sale goes against you, you’d have to sell your own shares to make up the loss on the short sale. That would trigger a tax event AND affect your concentrated position (that you did not actually want to dispose of)
2. Equity forward sale contract: This will, at the end of the contract, involve a sale, and therefore, both a tax event and will affect your concentrated position (that you did not actually want to dispose of).
3. Forward conversion with options: buying puts and selling calls - now at expiry or execution, both will involve you disposing of the shares and triggering a tax event.
How does this add up? The point of monetization is to raise cash without triggering a tax event, but in these cases, it does trigger a tax event AND it affects your concentrated position as you may ultimately have to dispose of the stock.
Regards,
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Fixed income- Duration matching
Please correct me if I’m wrong in my understanding of duration matching
is when you buy Zero coupon bond but maturity dates are different from your liability’s maturity therefore you match the investment horizon of the bond with the liability’s maturity.
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