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LOS b: Compare and contrast strategic and tactical asset allocation. ffice ffice" />
Q1. Bruce Calloway is interested in utilizing an appropriate asset allocation strategy for his portfolio. His long-term view of the capital market conditions is that there will always be change and opportunities to capture excess returns in the market. As a risk neutral investor, he is a consistent risk taker and his risk tolerance on his portfolio can be expected to be constant based on such market expectations. Which asset allocation strategy is the most appropriate strategy for his portfolio?
A) The tactical asset allocation strategy is most appropriate since this strategy assumes the investor’s risk tolerance is constant and his capital market expectations are subject to frequent change.
B) The dynamic strategic asset allocation strategy is most appropriate since this allows the capability to quickly move in and out of different assets as market conditions change.
C) The strategic asset allocation strategy is most appropriate since this strategy allows the portfolio to be periodically rebalanced according to market conditions.
Correct answer is A)
The most appropriate asset allocation strategy is the tactical strategy. This strategy assumes that the investor’s risk tolerance is constant and his capital market expectations are subject to frequent change. The tactical strategy assumes that investment allocation decisions are based on current market conditions, but the risk tolerances do not change with changes in wealth levels. For example, when the market conditions are bearish, the investor’s view of risk does not change with respect to capital commitments to stocks and will allocate a consistent level of his portfolio to cash or bonds. In bull market or when markets rally, the investor’s risk tolerance will not change and would continue to allocate consistent amounts to stocks and cash or bonds.
Q2. Deviation from the policy portfolio due to short-term capital market expectations is called:
A) strategic asset allocation.
B) targeted asset allocation.
C) tactical asset allocation.
Correct answer is C)
Tactical asset allocation is the deviation from the policy portfolio (Strategic asset allocation) based on short-term capital market expectations.
Q3. Tactical asset allocation is a deviation from the strategic asset allocation for the purpose of:
A) aligning with investor’s risk preferences.
B) exceeding investor’s return objectives.
C) taking advantage of short-term capital market expectations.
Correct answer is C)
Tactical asset allocation deviates from Strategic asset allocation to take advantage of short-term capital market expectations.
Q4. Strategic asset allocation analysis:
A) often results in constant mix strategies.
B) often results in a buy and hold strategy.
C) is usually done more frequently than tactical asset allocation.
Correct answer is A)
This is often expressed as a percentage of total value invested in each asset class.
Strategic asset allocation analysis is usually done whenever the investor's circumstances change significantly and is often done as frequently as yearly. It is based on long-run capital market conditions, and requires transactions to rebalance the mix periodically.
Q5. Which of the following statements regarding asset allocation strategies is FALSE?
A) Tactical allocation is a contrarian investment strategy.
B) In order to effectively implement a strategic asset allocation strategy, the investor's risk tolerance must remain constant.
C) Strategic asset allocation is a drifting mix strategy.
Correct answer is C)
Strategic asset allocation is a constant-mix strategy. It requires that a portfolio is rebalanced in order to maintain a prescribed allocation.
Q6. Tactical asset allocation analysis:
A) assumes that investor's risk tolerance decreases with wealth.
B) assumes lack of inefficiencies in the market.
C) is often based on deviant beliefs.
Correct answer is C)
Tactical asset analysis often operates on the assumption that the market overreacts to information.
Tactical asset analysis is typically performed routinely as part of a continuing asset management, attempts to take advantage of perceived inefficiencies in the relative prices of securities in different asset classes, and assumes that investor’s risk tolerance is unaffected by changes in wealth.
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发表于 2009-3-5 13:48
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