Reading 35
Analysis Of Active Portfolio Management
4 modules 14 min
0/4
Exam Focus
The information ratio is used to evaluate active managers and can be used to make portfolio allocation decisions for an investor. There are lots of formulas and linkages to be on top of for this reading. Understand the differences between the Sharpe ratio and the information ratio.
Be able to describe the full fundamental law and what influences each of the components. Understand the application of the fundamental law in the context of market timing and sector rotation strategies. Finally, be aware of the limitations of the fundamental law.
Modules
- Module 35.1Value Added By Active ManagementDescribe how value added by active management is measured.3 min · 1 LOS
- Module 35.2The Information Ratio Vs. The Sharpe RatioCalculate and interpret the information ratio (ex post and ex ante) and contrast it to the Sharpe ratio.4 min · 1 LOS
- Module 35.3The Fundamental LawDescribe and interpret the fundamental law of active portfolio management, including its component terms, transfer coefficient, information coefficient, breadth, and active risk (aggressiveness). · Explain how the information ratio may be useful in investment manager selection and choosing the level of active portfolio risk.3 min · 2 LOS
- Module 35.4Active ManagementCompare active management strategies, including market timing and security selection, and evaluate strategy changes in terms of the fundamental law of active management. · Describe the practical strengths and limitations of the fundamental law of active management.4 min · 2 LOS