- This topic has 5 replies, 4 voices, and was last updated Jan-188:16 am by
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Up4
Which of the following is least identified as a weakness of the top-down portfolio creation framework?
- It is difficult to divide risk up within an investment team.
- Investment managers don’t seek to maximize their respective returns.
- Dividing a portfolio into a team might lead to excess trading and
inefficient tax exposure.
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Up4
Dividing any work into teams brings many positive results.
But there are some specific downsides within portfolio management. Risk, for
instance, is difficult to divide up. By applying the risk metrics to each team,
the portfolio will be overly conservative (because each team diversifies the
other). Additionally, there can be extra trading which may be inefficient from
a tax standpoint (currently, in the U.S., for instance, appreciation on
investments owned for less than a year is taxed at a higher rate than for
investments owned for more than a year).
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Up3
Woo! I got it right. 🙂
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Up2
Damn. Hate getting an answer wrong.
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Up0
@hairyfairy‌ I know I do it a lot too. I swear I need to take a highlighter to the exam and highlight whether it says least or most, but I guess underlining with a pencil will have to suffice. I definitely recommend it.
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