CFA CFA Level 1 Question of the Week – Portfolio Management

Question of the Week – Portfolio Management

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    • AdaptPrep
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      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.
    • fabian
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      Damn. Hate getting an answer wrong.

    • AdaptPrep
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      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).

    • hairyfairy
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      “LEAST”!!!!! 

      I have to stop making these stupid mistakes.

    • shannondaily
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      @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. 

    • shannondaily
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      Woo! I got it right. 🙂 

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