Equity Portfolio Management

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a discuss the role of equities in the overall portfolio;

b discuss the rationales for passive, active, and semiactive (enhanced index) equity investment approaches and distinguish among those approaches with respect to expected active return and tracking risk;

c recommend an equity investment approach when given an investor’s investment policy statement and beliefs concerning market efficiency;

d distinguish among the predominant weighting schemes used in the construction of major equity market indices and evaluate the biases of each;

e compare alternative methods for establishing passive exposure to an equity market, including indexed separate or pooled accounts, index mutual funds, exchange-traded funds, equity index futures, and equity total return swaps;

f compare full replication, stratified sampling, and optimization as approaches to constructing an indexed portfolio and recommend an approach when given a description of the investment vehicle and the index to be tracked;

g explain and justify the use of equity investment–style classifications and discuss the difficulties in applying style definitions consistently;

h explain the rationales and primary concerns of value investors and growth investors and discuss the key risks of each investment style;

i compare techniques for identifying investment styles and characterize the style of an investor when given a description of the investor’s security selection method, details on the investor’s security holdings, or the results of a returns-based style ana

j compare the methodologies used to construct equity style indices;

k interpret the results of an equity style box analysis and discuss the consequences of style drift;

l distinguish between positive and negative screens involving socially responsible investing criteria and discuss their potential effects on a portfolio’s style characteristics;

m compare long–short and long-only investment strategies, including their risks and potential alphas, and explain why greater pricing inefficiency may exist on the short side of the market;

n explain how a market-neutral portfolio can be “equitized” to gain equity market exposure and compare equitized market-neutral and short-extension portfolios;

o compare the sell disciplines of active investors;

p contrast derivatives-based and stock-based enhanced indexing strategies and justify enhanced indexing on the basis of risk control and the information ratio;

q recommend and justify, in a risk-return framework, the optimal portfolio allocations to a group of investment managers;

r explain the core-satellite approach to portfolio construction and discuss the advantages and disadvantages of adding a completeness fund to control overall risk exposures;

s distinguish among the components of total active return (“true” active return and “misfit” active return) and their associated risk measures and explain their relevance for evaluating a portfolio of managers;

t explain alpha and beta separation as an approach to active management and demonstrate the use of portable alpha;

u describe the process of identifying, selecting, and contracting with equity managers;

v contrast the top-down and bottom-up approaches to equity research.