CFA Refresher Readings

 

Assets (Valuation/Allocation): Study Session 7

Learning Outcome Statements

 

“Asset Allocation”

The practitioner should be able to:

• Summarize the function of strategic asset allocation in portfolio management and discuss its role in relation to specifying and controlling the investor’s exposures to systematic risk
• Compare and contrast strategic and tactical asset allocation
• Appraise the importance of asset allocation for portfolio performance
• Contrast the asset-only and asset/liability management (ALM) approaches to asset allocation
• Explain the advantage of dynamic over static asset allocation and evaluate the trade-offs of complexity and cost
• Evaluate return and risk objectives in relation to strategic asset allocation
• Evaluate whether an asset class or set of asset classes has been appropriately specified
• Select and justify an appropriate set of asset classes for an investor
• Evaluate the theoretical and practical effects of including additional asset classes in an asset allocation
• Formulate and implement the major steps in asset allocation
• Discuss the strengths and limitations of the following approaches to asset allocation: mean-variance, resampled efficient frontier, Black-Litterman, Monte Carlo simulation, ALM, and experience based
• Discuss the structure of the minimum-variance frontier with a constraint against short sales
• Formulate and justify a strategic asset allocation, given an investment policy statement and capital market expectations
• Contrast the characteristic issues relating to asset allocation for individual investors versus institutional investors and critique a proposed asset allocation in light of those issues
• Formulate and justify tactical asset allocation (TAA) adjustments to strategic asset class weights, given a TAA strategy and expectational data

 

“Linking Pension Liabilities to Assets”

The practitioner should be able to:

• Contrast the assumptions concerning pension liability risk in asset-only and liability-relative approaches to asset allocation
• Discuss the fundamental and economic exposures of pension liabilities and identify asset types that mimic these liability exposures
• Compare pension portfolios built from a traditional asset-only perspective to portfolios designed relative to liabilities and discuss why corporations may choose not to fully implement the liability mimicking portfolio