Active and passive investing are exclusive, as are traditional and non-traditional managers. Traditional funds never use active strategies or enter the realm of non-traditional investing strategies.

Active portfolio management involves:Holding investments long-term without changesFrequent buying and selling to outperform the marketInvesting only in government securitiesAvoiding all high-risk investments40. Portfolio managers use asset allocation to:Minimize regulatory oversightBalance risk and returnAvoid all risksIncrease short-term gains41.  Alternative Investment Funds typically include:Mutual fundsHedge fundsSavings accountsFixed deposits42. Private equity investments involve:Buying public stocksInvesting in government bondsInvesting directly in private companiesTrading derivatives43. AIFs are suitable for:Risk-averse investorsConservative investorsHigh net worth individualsGeneral public44.  Hedge funds are known forLow-risk investmentsAggressive investment strategiesGuaranteed returnsFixed interest payments45. A key characteristic of AIFs is:Higher risk and potential for higher returnsGovernment backingGuaranteed returnsDaily liquidity

An investment philosophy is best defined asa. An approach to active managementb.A set of core beliefs that are used to develop and execute an investment strategyc.A strategy used to implement an asset allocation and security selection programd.Only of relevance to institutional investors.e. None of the options are correct.

Which of the following are true about a passive investment style? Select all that apply.Review LaterTypically doesn’t have a risky investing mandateAttempts to replicate a benchmark or indexUsually lower fees relative to an active investment styleUsually higher fees relative to an active investment styl

Semi-active management is focused on: O a. Taking small, calculated bets to outperform a targeted index on a net of fees basis • b. Using fundamental analysis to identify stocks likely to outperform O c. Tax-efficient outcomes • d. Maximising portfolio liquidity O e. Protecting capital in risk-off environments

What is the difference between active and passive investing and why is a specificbenchmark required when comparing the two investment strategies? Use the table below tocreate An active investment (portfolio) that invests in all the 5 stocks (at least 5%) but shouldoutperform the market (if the analyst’s predictions are correct). The portfolio is currentlyinvested passively, and each stock is invested in equal amounts.Stock Current market Price Current Valuation Weighting in a passive portfolioAXW $12.52 $10.25 20%NAQ $2.55 $2.75 20%PLB $42.96 $44.61 20%UGD $1.75 $0.98 20%MER $108.65 $106.54 20%Question 3: We know that in an efficient market, investors are unable to generate returnsconsistently above the market, and hence passive investing is suitable. Explain, if marketswould remain efficient if ALL investors invested passively. Now explain if markets wouldremain efficient if there was one active investor?Question 4: Explain the reasons why the textbook uses the example of pension funds to provethat markets are efficient? Further explain, what were the reasons that pension fundsunderperform their benchmark. Is the evidence of mutual fund performance for retailinvestors any better than the evidence for pension funds? Why is this the case?Question 5: Berk (2005) provides a theoretical framework that explains how fund managers’returns eventually equal benchmark returns. Explain how investors choose fund managers toinvest with and why their returns eventually fall to the returns of the benchmark. Furtherexplain if this theory explains if markets are efficient or inefficient?