Reading 70: The Portfolio Management Process and the Investm Investment, 2011, class, management, investment

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Session 18: Portfolio Management: Capital Market Theory and the Portfolio Management Process
Reading 70: The Portfolio Management Process and the Investment Policy Statement

LOS d: Discuss the role of the investment policy statement in the portfolio management process, and explain the elements of an investment policy statement.

 

 

The investment policy statement is least likely to contain which of the following?

A) Identification of responsibilities of parties involved.

B) Investor contact phone numbers and addresses.

C) Portfolio adjustment guidelines.

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The investment policy statement does not contain contact information, only information regarding responsible parties.

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The guidelines in the investment policy statement are important because they:

A) dictate how subsequent managers should change portfolio implementation.

B) allow continuity in implementation by current and subsequent managers.

C) determine how to make portfolio shifts after dramatic short-term value declines.

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The investment policy statement creates implementation guidelines so that any competent manager can implement portfolio decisions.

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Which of the following is least likely to be an advantage of a valid investment policy statement?

A) Promotes long-term discipline in investment decisions.

B) Provides for short-term strategy shifts in response to short-term dramatic value declines.

C) Allows for a continual dynamic process in meeting investor objectives.

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The investment policy statement does not provide for shifts in strategy due to value declines.

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The investment policy statement is important because it helps:

A) direct long-term investment portfolio decisions and promotes adjustments in response to panic and overreaction.

B) direct short-term investment portfolio decisions as a result of short-term responses to overreacting markets.

C) direct long-term investment portfolio decisions that deter adjustments due to panic and overconfidence.

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The investment policy statement helps insure against short-term strategy changes due to panic or overconfidence.

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The investment policy statement does not contain which of the following?

A) Evaluation of investor risk preferences.

B) Asset allocation guidelines.

C) Portfolio position listing.

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The investment policy statement does not contain a listing of portfolio positions, only guidelines as to what positions are allowed.

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The investment policy statement does not contain:

A) industry specifics for potential investment.

B) guidelines for adjusting portfolio composition.

C) a client description.

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The investment policy statement may provide guidelines for which industry may or may not be included in the portfolio but will not provide specifics about industry characteristics.