Portfolio Management MCQ - Portfolio Management Section 2

11 The section of the investment policy statement (IPS) that describes the client is:

The introduction describes the client and outlines what is covered in the document. Often, the purpose and scope of the IPS is included as part of introduction.

12 Saleem Sheikh, CFA, manages the portfolio of several clients. While preparing the IPS of these clients, he is most likely to begin with:

A written investment policy statement will typically begin with the investor's risk and return objectives.

13 Which of the following is the most difficult to quantify, while preparing an investment policy statement?

Measuring willingness to take risk (risk tolerance, risk aversion) is an exercise in applied psychology. Instruments attempting to measure risk attitudes exist, but they are clearly less objective than measurements of the ability to take risk. Ability to take risk is based on relatively objective traits such as expected income, time horizon, and existing wealth relative to liabilities.

14 Mr. Amjad Mirza, director of Acme &Co. (a publicly listed company) cannot trade his company’s stock at certain points of the year when disclosure of financial results are pending. What step regarding this restriction is most appropriate for Salahuddin Shaukat, who is managing Mirza’s fund, in preparing a written investment policy statement (IPS)?

When a client has a restriction on trading, such as this obligation to refrain from trading, the IPS “should note this constraint so that the portfolio manager does not inadvertently trade the stock on the client‟s behalf.”

15 Joseph Jackson, a fund manager at Hermes Global Equities, is preparing an IPS for his client. Which of the following will he least likely place in the appendices of this IPS?

Appendices contain information on strategic (baseline) asset allocation and permitted deviations from policy portfolio allocations, as well as how and when the portfolio allocations should be rebalanced. Procedures to update IPS are a major component of the IPS that is not a part of the appendices.