2023 CFA Program Curriculum Level III Box Set

✍ Scribed by CFA Institute

• Publisher: Wiley
• Year: 2022
• Tongue: English
• Leaves: 2580
• Edition: 1
• Category: Library

✦ Synopsis

Prepare for success on the 2023 CFA Level III exam with the latest official CFA^® Program Curriculum.

The 2023 CFA Program Curriculum Level III Box Set contains all the material you need to succeed on the Level III CFA exam in 2023. This set includes the full official curriculum for Level III and is part of the larger CFA Candidate Body of Knowledge (CBOK).

Designed to acclimate you to the exam’s heavy reliance on information synthesis and solution application regarding portfolio management and wealth planning, the Level III curriculum will help you master both calculation-based and word-based problems.

Highly visual and intuitively organized, this box set allows you to:

• Learn from financial thought leaders.
• Access market-relevant instruction.
• Gain critical knowledge and skills.

The set also includes practice questions to assist with your recall of key terms, concepts, and formulas. The volumes in Level III’s box set are:

• Volume 1: Behavioral Finance, Capital Market Expectations, and Asset Allocation
• Volume 2: Derivatives, Currency Management, and Fixed Income
• Volume 3: Fixed Income and Equity Portfolio Management
• Volume 4: Alternative Investment, Portfolio Management, and Private Wealth Management
• Volume 5: Institutional Investors, Other Topics in Portfolio Management, and Cases
• Volume 6: Ethics and Professional Standards

Perfect for anyone preparing for the 2023 Level III CFA exam, the 2023 CFA Program Curriculum Level III Box Set is a must-have resource for those seeking the advanced skills required to become a Chartered Financial Analyst^®.

✦ Table of Contents

2023 CFA© Program Curriculum Level III Volumes 1 Behavioral Finance, Capital Market Expectations, and Asset Allocation (CFA Institute) (Z-Library)
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Portfolio Management
1
Behavioral Finance
1
The Behavioral Biases of Individuals
Introduction and Categorizations of Behavioral Biases
1.1 Categorizations of Behavioral Biases
1.2 Differences between Cognitive Errors and Emotional Biases
Cognitive Errors: Belief Perseverance Biases: Conservation Bias and Confirmation Bias
2.1 Belief Perseverance Biases
Cognitive Errors: Belief Perseverance Biases – Representativeness
3.1 Base-­Rate Neglect
3.2 Sample-­Size Neglect
3.3 Consequences of Representativeness Bias
3.4 Detection of and Guidance on Overcoming Representativeness Bias
Cognitive Errors: Belief Perseverance Biases - Illusion of Control Bias and Hindsight Bias
4.1 Illusion of control bias
4.2 Hindsight Bias
Cognitive Errors: Information Processing Biases
5.1 Anchoring and Adjustment Bias
5.2 Mental Accounting Bias
5.3 Framing Bias
5.4 Availability Bias
5.5 Cognitive Errors: Conclusion
Emotional Biases: Loss Aversion
6.1 Loss-­Aversion Bias
Emotional Biases: Overconfidence & Self Control
7.1 Overconfidence Bias
7.2 Self-­Control Bias
Emotional Biases: Status Quo, Endowment, and Regret-­Aversion
8.1 Status Quo Bias
8.2 Endowment Bias
8.3 Regret-­Aversion Bias
8.4 Emotional Biases: Conclusion
Summary
Practice Problems
Solutions
2
Behavioral Finance and Investment Processes
Introduction and General Discussion of Investor Types
1.1 General Discussion of Investor Types
New Developments in Psychographic Modeling: Behavioral Investor Types
2.1 The Behavioral Alpha Process: A Top-­Down Approach
2.2 Limitations of Classifying Investors into Various Types
How Behavioral Factors Affect Adviser-­Client Relations
3.1 Formulating Financial Goals
3.2 Maintaining a Consistent Approach
3.3 Investing as the Client Expects
3.4 Ensuring Mutual Benefits
3.5 Limitations of Traditional Risk Tolerance Questionnaires
How Behavioral Factors Affect Portfolio Construction
4.1 Inertia and Default
4.2 Naïve Diversification
4.3 Company Stock: Investing in the Familiar
4.4 Excessive Trading
4.5 Home Bias
Behavioral Finance and Analyst Forecasts and Overconfidence in Forecasting Skills
5.1 Overconfidence in Forecasting Skills
Influence of Company’s Management on Analysis and Analyst Biases in Conducting Research
6.1 Remedial Actions for Influence of Company’s Management on Analysis
6.2 Analyst Biases in Conducting Research
6.3 Remedial Actions for Analyst Biases in Conducting Research
How Behavioral Factors Affect Committee Decision Making
7.1 Investment Committee Dynamics
7.2 Techniques for Structuring and Operating Committees to Address Behavioral Factors
How Behavioral Finance Influences Market Behavior
8.1 Defining Market Anomalies
8.2 Momentum
8.3 Bubbles and Crashes
8.4 Value and Growth
Summary
Practice Problems
Solutions
2
Capital Market Expectations
3
Capital Market Expectations, Part 1: Framework and Macro Considerations
Introduction & Framework for Developing Capital Market Expectations
1.1 Framework and Challenges
Challenges in Forecasting
2.1 Limitations of Economic Data
2.2 Data Measurement Errors and Biases
2.3 The Limitations of Historical Estimates
2.4 Ex Post Risk Can Be a Biased Measure of Ex Ante Risk
2.5 Biases in Analysts’ Methods
2.6 The Failure to Account for Conditioning Information
2.7 Misinterpretation of Correlations
2.8 Psychological Biases
2.9 Model Uncertainty
Economic and Market Analysis: The Role of Economic Analysis and Analysis of Economic Growth: Exogenous Shocks to Growth
3.1 The Role of Economic Analysis
3.2 Analysis of Economic Growth
Applying Growth Analysis to Capital Market Expectations
4.1 A Decomposition of GDP Growth and Its Use in Forecasting
4.2 Anchoring Asset Returns to Trend Growth
Approaches to Economic Forecasting
5.1 Econometric Modeling
5.2 Economic Indicators
5.3 Checklist Approach
5.4 Economic Forecasting Approaches: Summary of Strengths and Weaknesses
Business Cycle Analysis, Phases of the Business Cycle and Market Expectations and the Business Cycle
6.1 Phases of The Business Cycle
6.2 Market Expectations and the Business Cycle
Inflation and Deflation: Trends and Relations to the Business Cycle
Analysis of Monetary and Fiscal Policies
8.1 Monetary Policy
What Happens When Interest Rates Are Zero or Negative? And Implications of Negative Rates for Capital Market Expectations
9.1 Implications of Negative Interest Rates for Capital Market Expectations
The Monetary and Fiscal Policy Mix and the Shape of the Yield Curve and the Business Cycle
10.1 The Shape of the Yield Curve and the Business Cycle
International Interactions
11.1 Macroeconomic Linkages
11.2 Interest Rate/Exchange Rate Linkages
Summary
Practice Problems
Solutions
4
Capital Market Expectations, Part 2: Forecasting Asset Class Returns
Introduction
Overview of Tools and Approaches
2.1 The Nature of the Problem
2.2 Approaches to Forecasting
Forecasting Fixed Income Returns
3.1 Applying DCF to Fixed Income
3.2 The Building Block Approach to Fixed-­Income Returns
Risks in Emerging Market Bonds
4.1 Economic Risks/Ability to Pay
4.2 Political and Legal Risks/Willingness to Pay
Forecasting Equity Returns
5.1 Historical Statistics Approach to Equity Returns
5.2 DCF Approach to Equity Returns
5.3 Risk Premium Approaches to Equity Returns
5.4 Risks in Emerging Market Equities
Forecasting Real Estate Returns
6.1 Historical Real Estate Returns
6.2 Real Estate Cycles
6.3 Capitalization Rates
6.4 The Risk Premium Perspective on Real Estate Expected Return
6.5 Real Estate in Equilibrium
6.6 Public vs. Private Real Estate
6.7 Long-­Term Housing Returns
Forecasting Exchange Rates
7.1 Focus on Goods and Services, Trade, and the Current Account
7.2 Focus on Capital Flows
Forecasting Volatility
8.1 Estimating a Constant VCV Matrix with Sample Statistics
8.2 VCV Matrices from Multi-­Factor Models
8.3 Shrinkage Estimation of VCV Matrices
8.4 Estimating Volatility from Smoothed Returns
8.5 Time-­Varying Volatility: ARCH Models
Adjusting a Global Portfolio
9.1 Macro-­Based Recommendations
9.2 Quantifying the Views
Summary
Practice Problems
Solutions
3
Asset Allocation and Related Decisions in Portfolio Management
5
Overview of Asset Allocation
Introduction and Asset Allocation: Importance in Investment Management
1.1 Asset Allocation: Importance in Investment Management
The Investment Governance Background to Asset Allocation
2.1 Governance Structures
2.2 Articulating Investment Objectives
2.3 Allocation of Rights and Responsibilities
2.4 Investment Policy Statement
2.5 Asset Allocation and Rebalancing Policy
2.6 Reporting Framework
2.7 The Governance Audit
The Economic Balance Sheet and Asset Allocation
Approaches to Asset Allocation, Relevant Objectives and Relevant Risk Concepts
4.1 Relevant Objectives
4.2 Relevant Risk Concepts
Modeling Asset Class Risk
Strategic Asset Allocation
Strategic Asset Allocation: Asset Only
Strategic Asset Allocation: Liability Relative
Strategic Asset Allocation: Goals Based
Implementation Choices
10.1 Passive/Active Management of Asset Class Weights
10.2 Passive/Active Management of Allocations to Asset Classes
10.3 Risk Budgeting Perspectives in Asset Allocation and Implementation
Rebalancing: Strategic considerations
11.1 A Framework for Rebalancing
11.2 Strategic Considerations in Rebalancing
Summary
Practice Problems
Solutions
6
Principles of Asset Allocation
Introduction
Developing Asset-­Only Asset Allocations; and Mean-­Variance Optimization: Overview
2.1 Mean–Variance Optimization: Overview
Monte Carlo Simulation
Criticisms of Mean-­Variance Optimization
Addressing the Criticisms of Mean-­Variance Optimization; Reverse Optimization and Black Litterman Model
5.1 Reverse Optimization
5.2 Black–Litterman Model
Addressing the Criticisms of Mean-­Variance Optimization; Adding Constraints beyond Budget Constraints, Resampled Mean-­Variance Optimizations and Other Non-­Normal Optimization Approaches
6.1 Resampled Mean–Variance Optimization
6.2 Other Non-­Normal Optimization Approaches
Allocating to Less Liquid Asset Classes
Risk Budgeting
Factor-­Based Asset Allocation
Developing Liability-­Relative Asset Allocations; and Characterizing the Liabilities
10.1 Characterizing the Liabilities
Approaches to Liability-­Relative Asset Allocation; and Surplus Optimization
11.1 Surplus Optimization
Approaches to Liability-­Relative Asset Allocation
12.1 Hedging/Return-­Seeking Portfolio Approach
12.2 Integrated Asset–Liability Approach
12.3 Comparing the Approaches
Examining the Robustness of Asset Allocation Alternatives
Factor Modeling in Liability-­Relative Approaches
Developing Goals-­Based Asset Allocations. The Goals-­Based Asset Allocation Process and Describing Client Goals.
15.1 The Goals-­Based Asset Allocation Process
15.2 Describing Client Goals
Constructing Sub-­Portfolios and the Overall Portfolio
16.1 The Overall Portfolio
Revisiting the Module Process in Detail
Periodically Revisiting the Overall Asset Allocation and Issues Related to Goals-­Based Asset Allocation
18.1 Issues Related to Goals-­Based Asset Allocation
Heuristics and Other Approaches to Asset Allocation
19.1 The “120 minus your age” rule
19.2 The 60/40 stock/bond heuristic
19.3 The endowment model
19.4 Risk parity
19.5 The 1/N rule
Portfolio Rebalancing in Practice
Summary
Practice Problems
Solutions
7
Asset Allocation with Real-­World Constraints
Introduction
Constraints in Asset Allocation and Asset Size
2.1 Asset Size
Liquidity
Time Horizon
4.1 Changing Human Capital
4.2 Changing Character of Liabilities
Regulatory and Other External Constraints
5.1 Insurance Companies
5.2 Pension Funds
5.3 Endowments and Foundations
5.4 Sovereign Wealth Funds
Asset Allocation for the Taxable Investor and After-­Tax Portfolio Optimization
6.1 After-­Tax Portfolio Optimization
Taxes and Portfolio Rebalancing and Strategies to Reduce Tax Impact
7.1 Strategies to Reduce Tax Impact
Revising the Strategic Asset Allocation
8.1 Goals
8.2 Constraints
8.3 Beliefs
Short-­Term Shifts in Asset Allocation
9.1 Discretionary TAA
9.2 Systematic TAA
Dealing with Behavioral Biases in Asset Allocation
10.1 Loss Aversion
10.2 Illusion of Control
10.3 Mental Accounting
10.4 Representativeness Bias
10.5 Framing Bias
10.6 Availability Bias
Summary
Practice Problems
Solutions
2023 CFA© Program Curriculum Level III Volumes 2 Derivatives, Currency Management, and Fixed Income (CFA Institute) (Z-Library)
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Portfolio Management
4
Derivatives and Currency Management
8
Options Strategies
Introduction
Position Equivalencies
2.1 Synthetic Forward Position
2.2 Synthetic Put and Call
Covered Calls and Protective Puts
3.1 Investment Objectives of Covered Calls
Investment Objectives of Protective Puts
4.1 Loss Protection/Upside Preservation
4.2 Profit and Loss at Expiration
Equivalence to Long Asset/Short Forward Position
5.1 Writing Puts
Risk Reduction Using Covered Calls and Protective Puts
6.1 Covered Calls
6.2 Protective Puts
6.3 Buying Calls and Writing Puts on a Short Position
Spreads and Combinations
7.1 Bull Spreads and Bear Spreads
Straddle
8.1 Collars
8.2 Calendar Spread
Implied Volatility and Volatility Skew
Investment Objectives and Strategy Selection
10.1 The Necessity of Setting an Objective
10.2 Criteria for Identifying Appropriate Option Strategies
Uses of Options in Portfolio Management
11.1 Covered Call Writing
11.2 Put Writing
11.3 Long Straddle
11.4 Collar
11.5 Calendar Spread
Hedging an Expected Increase in Equity Market Volatility
12.1 Establishing or Modifying Equity Risk Exposure
Summary
Practice Problems
Solutions
9
Swaps, Forwards, and Futures Strategies
Managing Interest Rate Risk with Swaps
1.1 Changing Risk Exposures with Swaps, Futures, and Forwards
Managing Interest Rate Risk with Forwards, Futures and Fixed-­Income Futures
2.1 Fixed-­Income Futures
Managing Currency Exposure
3.1 Currency Swaps
3.2 Currency Forwards and Futures
Managing Equity Risk
4.1 Equity Swaps
4.2 Equity Forwards and Futures
4.3 Cash Equitization
Volatility Derivatives: Futures and Options
5.1 Volatility Futures and Options
Volatility Derivatives: Variance Swaps
Using Derivatives to Manage Equity Exposure and Tracking Error
Solution:
7.1 Cash Equitization
Using Derivatives in Asset Allocation
8.1 Changing Allocations between Asset Classes Using Futures
8.2 Rebalancing an Asset Allocation Using Futures
8.3 Changing Allocations between Asset Classes Using Swaps
Using Derivatives to Infer Market Expectations
9.1 Using Fed Funds Futures to Infer the Expected Average Federal Funds Rate
9.2 Inferring Market Expectations
Summary
Practice Problems
Solutions:
10
Currency Management: An Introduction
Introduction
Review of Foreign Exchange Concepts
2.1 Spot Markets
2.2 Forward Markets
2.3 FX Swap Markets
2.4 Currency Options
Currency Risk and Portfolio Risk and Return
3.1 Return Decomposition
3.2 Volatility Decomposition
Strategic Decisions in Currency Management: Overview
4.1 The Investment Policy Statement
4.2 The Portfolio Optimization Problem
4.3 Choice of Currency Exposures
Strategic Decisions in Currency Management: Spectrum of Currency Risk Management Strategies
5.1 Passive Hedging
5.2 Discretionary Hedging
5.3 Active Currency Management
5.4 Currency Overlay
Strategic Decisions in Currency Management: Formulating a Currency Management Program
Active Currency Management: Based on Economic Fundamentals, Technical Analysis and the Carry Trade
7.1 Active Currency Management Based on Economic Fundamentals
7.2 Active Currency Management Based on Technical Analysis
7.3 Active Currency Management Based on the Carry Trade
Active Currency Management: Based on Volatility Trading
Currency Management Tools: Forward Contracts, FX Swaps and Currency Options
9.1 Forward Contracts
9.2 Currency Options
Currency Management Strategies
10.1 Over-/Under-­Hedging Using Forward Contracts
10.2 Protective Put Using OTM Options
10.3 Risk Reversal (or Collar)
10.4 Put Spread
10.5 Seagull Spread
10.6 Exotic Options
10.7 Section Summary
Hedging Multiple Foreign Currencies
11.1 Cross Hedges and Macro Hedges
11.2 Minimum-­Variance Hedge Ratio
11.3 Basis Risk
Currency Management Tools and Strategies: A Summary
Currency Management for Emerging Market Currencies
13.1 Special Considerations in Managing Emerging Market Currency Exposures
13.2 Non-­Deliverable Forwards
Summary
Practice Problems
Solutions
5
Fixed-­Income Portfolio Management (1)
11
Overview of Fixed-­Income Portfolio Management
Introduction
Roles of Fixed-­Income Securities in Portfolios
2.1 Diversification Benefits
2.2 Benefits of Regular Cash Flows
2.3 Inflation-­Hedging Potential
Classifying Fixed-­Income Mandates
3.1 Liability-­Based Mandates
3.2 Total Return Mandates
3.3 Fixed-­Income Mandates with ESG Considerations
Fixed-­Income Portfolio Measures
4.1 Portfolio Measures of Risk and Return
4.2 Correlations between Fixed-­Income Sectors
4.3 Use of Measures of Risk and Return in Portfolio Management
Bond Market Liquidity
5.1 Liquidity among Bond Market Sub-­Sectors
5.2 The Effects of Liquidity on Fixed-­Income Portfolio Management
A Model for Fixed-­Income Returns
6.1 Decomposing Expected Returns
6.2 Estimation of the Inputs
6.3 Limitations of the Expected Return Decomposition
Leverage
7.1 Using Leverage
7.2 Methods for Leveraging Fixed-­Income Portfolios
7.3 Risks of Leverage
Fixed-­Income Portfolio Taxation
8.1 Principles of Fixed-­Income Taxation
8.2 Investment Vehicles and Taxes
Summary
Practice Problems
Solutions
12
Liability-­Driven and Index-­Based Strategies
Introduction
Liability-­Driven Investing
2.1 Liability-­Driven Investing vs. Asset-­Driven Liabilities
2.2 Types of Liabilities
Interest Rate Immunization: Managing the Interest Rate Risk of a Single Liability
3.1 A Numerical Example of Immunization
Interest Rate Immunization: Managing the Interest Rate Risk of Multiple Liabilities
4.1 Cash Flow Matching
4.2 Laddered Portfolios
4.3 Duration Matching
4.4 Derivatives Overlay
4.5 Contingent Immunization
Liability-­Driven Investing: An Example of a Defined Benefit Pension Plan
5.1 Model Assumptions
5.2 Model Inputs
5.3 Calculating Durations
5.4 Addressing the Duration Gap
Risks in Liability-­Driven Investing
6.1 Model Risk in Liability-­Driven Investing
6.2 Spread Risk in Liability-­Driven Investing
6.3 Counterparty Credit Risk
6.4 Asset Liquidity Risk
Bond Indexes and the Challenges of Matching a Fixed-­Income Portfolio to an Index
7.1 Size and Breadth of the Fixed-­Income Universe
7.2 Array of Characteristics
7.3 Unique Issuance and Trading Patterns
7.4 Primary Risk Factors
Alternative Methods for Establishing Passive Bond Market Exposure
8.1 Full Replication
8.2 Enhanced Indexing
8.3 Alternatives to Investing Directly in Fixed-­Income Securities
Benchmark Selection
Summary
Practice Problems
Solutions
2023 CFA© Program Curriculum Level III Volumes 3 Fixed Income and Equity Portfolio Management (CFA Institute) (Z-Library)
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Portfolio Management
6
Fixed-­Income Portfolio Management (2)
13
Yield Curve Strategies
Introduction
Key Yield Curve and Fixed-­Income Concepts for Active Managers
2.1 Yield Curve Dynamics
2.2 Duration and Convexity
Yield Curve Strategies
3.1 Static Yield Curve
3.2 Dynamic Yield Curve
3.3 Key Rate Duration for a Portfolio
Active Fixed-­Income Management across Currencies
A Framework for Evaluating Yield Curve Strategies
Summary
Practice Problems
Solutions
14
Fixed-­Income Active Management: Credit Strategies
Introduction
Key Credit and Spread Concepts for Active Management
2.1 Credit Risk Considerations
2.2 Credit Spread Measures
Credit Strategies
3.1 Bottom-­Up Credit Strategies
3.2 Top-­Down Credit Strategies
3.3 Factor-­Based Credit Strategies
Liquidity and Tail Risk
4.1 Liquidity Risk
4.2 Tail Risk
Synthetic Credit Strategies
Credit Spread Curve Strategies
6.1 Static Credit Spread Curve Strategies
6.2 Dynamic Credit Spread Curve Strategies
Global Credit Strategies
Structured Credit
Fixed-­Income Analytics
Summary
Practice Problems
Solutions
7
Equity Portfolio Management (1)
15
Overview of Equity Portfolio Management
Introduction and the Role of Equities in a Portfolio
1.1 The Roles of Equities in a Portfolio
Equity Investment Universe
2.1 Segmentation by Size and Style
2.2 Segmentation by Geography
2.3 Segmentation by Economic Activity
2.4 Segmentation of Equity Indexes and Benchmarks
Income Associated with Owning and Managing an Equity Portfolio
3.1 Dividend Income
3.2 Securities Lending Income
3.3 Ancillary Investment Strategies
Costs Associated with Owning and Managing an Equity Portfolio
4.1 Performance Fees
4.2 Administration Fees
4.3 Marketing and Distribution Costs
4.4 Trading Costs
4.5 Investment Approaches and Effects on Costs
Shareholder Engagement
5.1 Benefits of Shareholder Engagement
5.2 Disadvantages of Shareholder Engagement
5.3 The Role of an Equity Manager in Shareholder Engagement
Equity Investment Across the Passive-­Active Spectrum
6.1 Confidence to Outperform
6.2 Client Preference
6.3 Suitable Benchmark
6.4 Client-­Specific Mandates
6.5 Risks/Costs of Active Management
6.6 Taxes
Summary
Practice Problems
Solutions
16
Passive Equity Investing
Choosing a Benchmark: Indexes as a Basis for Investment
1.1 Choosing a Benchmark
Choosing a Benchmark: Index Construction Methodologies
Choosing a Benchmark: Factor-­Based Strategies
Approaches to Passive Equity Investing: Pooled Investments
4.1 Pooled Investments
Approaches to Passive Equity Investing: Derivatives-­Based Approaches & Index-­Based Portfolios
5.1 Separately Managed Equity Index-­Based Portfolios
Passive Portfolio Construction
6.1 Full Replication
6.2 Stratified Sampling
6.3 Optimization
6.4 Blended Approach
Tracking Error Management
7.1 Tracking Error and Excess Return
7.2 Potential Causes of Tracking Error and Excess Return
7.3 Controlling Tracking Error
Sources of Return and Risk in Passive Equity Portfolios
8.1 Attribution Analysis
8.2 Securities Lending
8.3 Investor Activism and Engagement by Passive Managers
Summary
Practice Problems
Solutions
8
Equity Portfolio Management (2)
17
Active Equity Investing: Strategies
Introduction
Approaches to Active Management
2.1 Differences in the Nature of the Information Used
2.2 Differences in the Focus of the Analysis
2.3 Difference in Orientation to the Data: Forecasting Fundamentals vs. Pattern Recognition
2.4 Differences in Portfolio Construction: Judgment vs. Optimization
Bottom-­Up Strategies
3.1 Bottom-­Up Strategies
Top-­Down Strategies
4.1 Country and Geographic Allocation to Equities
4.2 Sector and Industry Rotation
4.3 Volatility-­Based Strategies
4.4 Thematic Investment Strategies
Factor-­Based Strategies: Overview
Factor-­Based Strategies: Style Factors
6.1 Value
6.2 Price Momentum
6.3 Growth
6.4 Quality
Factor-­Based Strategies: Unconventional Factors
Activist Strategies
8.1 The Popularity of Shareholder Activism
8.2 Tactics Used by Activist Investors
8.3 Typical Activist Targets
Other Active Strategies
9.1 Strategies Based on Statistical Arbitrage and Market Microstructure
9.2 Event-­Driven Strategies
Creating a Fundamental Active Investment Strategy
10.1 The Fundamental Active Investment Process
10.2 Pitfalls in Fundamental Investing
Creating a Quantitative Active Investment Strategy
11.1 Creating a Quantitative Investment Process
11.2 Pitfalls in Quantitative Investment Processes
Equity Investment Style Classification
12.1 Different Approaches to Style Classification
12.2 Strengths and Limitations of Style Analysis
Summary
Practice Problems
Solutions
18
Active Equity Investing: Portfolio Construction
Introduction
Building Blocks of Active Equity Portfolio Construction
2.1 Fundamentals of Portfolio Construction
2.2 Building Blocks Used in Portfolio Construction
The Implementation Process: Portfolio Construction Approaches
3.1 The Implementation Process: The Choice of Portfolio Management Approaches
The Implementation Process: Measures of Benchmark-­Relative Risk
The Implementation Process: Objectives and Constraints
Absolute vs. Relative Measures of Risk
6.1 Absolute vs. Relative Measures of Risk
Determining the Appropriate Level of Risk
7.1 Implementation constraints
7.2 Limited diversification opportunities
7.3 Leverage and its implications for risk
Allocating the Risk Budget
Additional Risk Measures Used in Portfolio Construction and Monitoring
9.1 Heuristic Constraints
9.2 Formal Constraints
9.3 The Risks of Being Wrong
Implicit Cost-­Related Considerations in Portfolio Construction
10.1 Implicit Costs—Market Impact and the Relevance of Position Size, Assets under Management, and Turnover
10.2 Estimating the Cost of Slippage
The Well-­Constructed Portfolio
Long/Short, Long Extension, and Market-­Neutral Portfolio Construction
12.1 The Merits of Long-­Only Investing
12.2 Long/Short Portfolio Construction
12.3 Long Extension Portfolio Construction
12.4 Market-­Neutral Portfolio Construction
12.5 Benefits and Drawbacks of Long/Short Strategies
Summary
Practice Problems
Solutions
2023 CFA© Program Curriculum Level III Volumes 4 Alternative Investment, Portfolio Management, and Private Wealth Management (CFA Institute) (Z-Library)
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Portfolio Management
9
Alternative Investments for Portfolio Management
19
Hedge Fund Strategies
Introduction and Classification of Hedge Fund Strategies
1.1 Classification of Hedge Funds and Strategies
Equity Strategies: Long/Short Equity
2.1 Long/Short Equity
Equity Strategies: Dedicated Short Selling and Short-­Biased
3.1 Investment Characteristics
3.2 Strategy Implementation
Equity Strategies: Equity Market Neutral
4.1 Investment Characteristics
4.2 Strategy Implementation
Event-­Driven Strategies: Merger Arbitrage
5.1 Merger Arbitrage
Event-­Driven Strategies: Distressed Securities
6.1 Investment Characteristics
6.2 Strategy Implementation
Relative Value Strategies: Fixed Income Arbitrage
7.1 Fixed-­Income Arbitrage
Relative Value Strategies: Convertible Bond Arbitrage
8.1 Investment Characteristics
8.2 Strategy Implementation
Opportunistic Strategies: Global Macro Strategies
9.1 Global Macro Strategies
Opportunistic Strategies: Managed Futures
10.1 Investment Characteristics
10.2 Strategy Implementation
Specialist Strategies
11.1 Volatility Trading
11.2 Reinsurance/Life Settlements
Multi-­Manager Strategies
12.1 Fund-­of-­Funds
12.2 Multi-­Strategy Hedge Funds
Analysis of Hedge Fund Strategies using a Conditional Factor Risk Model
13.1 Conditional Factor Risk Model
Evaluating Equity Hedge Fund Strategies: Application
Evaluating Multi-­Manager Hedge Fund Strategies: Application
Portfolio Contribution of Hedge Fund Strategies
16.1 Performance Contribution to a 60/40 Portfolio
16.2 Risk Metrics
Summary
Practice Problems
Solutions
20
Asset Allocation to Alternative Investments
Introduction and The Role of Alternative Investments in a Multi-­Asset Portfolio
1.1 The Role of Alternative Investments in a Multi-­Asset Portfolio
Diversifying Equity Risk
2.1 Volatility Reduction over the Short Time Horizon
2.2 Risk of Not Meeting the Investment Goals over the Long Time Horizon
Traditional Approaches to Asset Classification
3.1 Traditional Approaches to Asset Classification
Risk-­Based Approaches to Asset Classification and Comparing Risk-­Based and Traditional Approaches
4.1 Illustration: Asset Allocation and Risk-­Based Approaches
4.2 Comparing Risk-­Based and Traditional Approaches
Risk Considerations, Return Expectations and Investment Vehicle
5.1 Risk Considerations
5.2 Return Expectations
5.3 Investment Vehicle
Liquidity
6.1 Liquidity Risks Associated with the Investment Vehicle
6.2 Liquidity Risks Associated with the Underlying Investments
Fees and Expenses, Tax Considerations, and Other Considerations
7.1 Tax Considerations
7.2 Other Considerations
Suitability Considerations
8.1 Investment Horizon
8.2 Expertise
8.3 Governance
8.4 Transparency
Asset Allocation Approaches and Statistical Properties and Challenges of Asset Returns
9.1 Statistical Properties and Challenges of Asset Returns
Monte Carlo Simulation
10.1 Simulating Skewed and Fat-­Tailed Financial Variables
10.2 Simulation for Long-­Term Horizon Risk Assessment
Portfolio Optimization
11.1 Mean–Variance Optimization without and with Constraints
11.2 Mean–CVaR Optimization
Risk Factor-­Based Optimization
Liquidity Planning and Achieving and Maintaining the Strategic Asset Allocation
13.1 Achieving and Maintaining the Strategic Asset Allocation
Managing the Capital Calls and Preparing for the Unexpected
14.1 Preparing for the Unexpected
Monitoring the Investment Program
15.1 Overall Investment Program Monitoring
15.2 Performance Evaluation
15.3 Monitoring the Firm and the Investment Process
Summary
Practice Problems
Solutions
10
Private Wealth Management (1)
21
Overview of Private Wealth Management
Introduction and Private Clients Versus Institutional Clients
1.1 Private Clients versus Institutional Clients
Understanding Private Clients: Information Needed in Advising Private Clients
2.1 Information Needed in Advising Private Clients
Client Goals
3.1 Planned Goals
3.2 Unplanned Goals
3.3 The Wealth Manager’s Role
Private Client Risk Tolerance
4.1 Risk Tolerance Questionnaire
4.2 Risk Tolerance Conversation
4.3 Risk Tolerance with Multiple Goals
Technical and Soft Skills for Wealth Managers
5.1 Technical Skills
5.2 Soft Skills
Investment Planning, and Capital Sufficiency Analysis
6.1 Capital Sufficiency Analysis
Retirement Planning
7.1 Retirement Stage of Life
Investment Policy Statement
8.1 Parts of the Investment Policy Statement
Sample Investment Policy Statement
Portfolio Construction and Allocation and Investments for Private Wealth Clients
10.1 Portfolio Allocation and Investments for Private Wealth Clients
Portfolio Reporting and Review
11.1 Portfolio Reporting
11.2 Portfolio Review
Evaluating The Success of an Investment Program
12.1 Goal Achievement
12.2 Process Consistency
12.3 Portfolio Performance
12.4 Definitions of Success
Ethical and Compliance Considerations in Private Wealth Management
13.1 Ethical Considerations
13.2 Compliance Considerations
Private Client Segments
14.1 Mass Affluent Segment
14.2 High-­Net-­Worth Segment
14.3 Ultra-­High-­Net-­Worth Segment
14.4 Robo-­Advisors
Summary
Practice Problems
Solutions
22
Topics in Private Wealth Management
Introduction
General Principles of Taxation: Components of Return and Tax Status of the Account
2.1 Taxation of the Components of Return
2.2 The Tax Status of the Account
The Jurisdiction that Applies to the Investor
Measuring Tax Efficiency with After-­Tax Returns
4.1 Tax Efficiency of Various Asset Classes and Investment Strategies
4.2 Calculating After-­Tax Returns
Taxable, Tax-­Exempt, and Tax-­Deferred Accounts: Capital Accumulation and Asset Location
5.1 Capital Accumulation in Taxable, Tax-­Deferred, and Tax-­Exempt Accounts
5.2 Asset Location
Taxable, Tax-­Exempt, and Tax-­Deferred Accounts: Decumulation Strategies and Charitable Giving Strategies
6.1 Tax Considerations in Charitable Giving
Tax Management Strategies and Basic Tax Strategies
7.1 Basic Portfolio Tax Management Strategies
Application of Tax Management Strategies
8.1 Investment Vehicles
8.2 Tax Loss Harvesting
8.3 Quantitative Tax Management
Managing Concentrated Portfolios and Risk and Tax Considerations in Managing Concentrated Single-­Asset Positions
9.1 Risk and Tax Considerations in Managing Concentrated Single-­Asset Positions
Strategies for Managing Concentrated Positions in Public Equities
10.1 Staged Diversification and Completion Portfolios
10.2 Tax-­Optimized Equity Strategies—Equity Monetization, Collars, and Call Writing
10.3 Tax-­Free Exchanges
10.4 Charitable Remainder Trust
Strategies for Managing Concentrated Positions in Privately Owned Businesses and Strategies for Managing Concentrated Positions in Real Estate
11.1 Personal Line of Credit Secured by Company Shares
11.2 Leveraged Recapitalization
11.3 Employee Stock Ownership Plan
11.4 Strategies for Managing Concentrated Positions in Real Estate
11.5 Mortgage Financing
11.6 Real Estate Monetization for the Charitably Inclined—An Asset Location Strategy
Directing and Transferring Wealth and Objectives of Gift and Estate Planning
12.1 Objectives of Gift and Estate Planning
Gift and Estate Planning Strategies, Introduction to Estate Planning: Wills, Probate and Legal Systems, and Lifetime Gifts and Testamentary Bequests
13.1 Introduction to Estate Planning: Wills, Probate, and Legal Systems
13.2 Lifetime Gifts and Testamentary Bequests
13.3 Efficiency of Lifetime Gifts versus Testamentary Bequests
Estate Planning Tools: Trusts, Foundations, Life Insurance, Companies
Managing Wealth Across Generations, General Principles of Family Governance, Family Conflict Resolution, and Family Dynamics in the Context of Business Exit
15.1 General Principles of Family Governance
15.2 Family Conflict Resolution
15.3 Family Dynamics in the Context of Business Exit
Planning for the Unexpected
16.1 Divorce
16.2 Incapacity
Summary
Practice Problems
Solutions
11
Private Wealth Management (2)
23
Risk Management for Individuals
Introduction
Human Capital, Financial Capital, and Economic Net Worth
2.1 Human Capital
2.2 Financial Capital
2.3 Economic Net Worth
A Framework for Individual Risk Management
3.1 The Risk Management Strategy for Individuals
3.2 Financial Stages of Life
The Individual Balance Sheet
4.1 Traditional Balance Sheet
4.2 Economic (Holistic) Balance Sheet
4.3 Changes in Economic Net Worth
Individual Risk Exposures
5.1 Earnings Risk
5.2 Premature Death Risk
5.3 Longevity Risk
5.4 Property Risk
5.5 Liability Risk
5.6 Health Risk
Life Insurance: Uses, Types and Elements
6.1 Life Insurance
Life Insurance - Pricing, Policy Cost Comparison and Determining Amount Needed
7.1 Mortality Expectations
7.2 Calculation of the Net Premium and Gross Premium
7.3 Cash Values and Policy Reserves
7.4 Consumer Comparisons of Life Insurance Costs
7.5 How Much Life Insurance Does One Need?
Other Types of Insurance
8.1 Property Insurance
8.2 Health/Medical Insurance
8.3 Liability Insurance
8.4 Other Types of Insurance
Annuities: Types, Structure and Classification
9.1 Parties to an Annuity Contract
9.2 Classification of Annuities
Annuities: Advantages and Disadvantages of Fixed and Variable Annuities
10.1 Volatility of Benefit Amount
10.2 Flexibility
10.3 Future Market Expectations
10.4 Fees
10.5 Inflation Concerns
10.6 Payout Methods
10.7 Annuity Benefit Taxation
10.8 Appropriateness of Annuities
Risk Management Implementation: Determining the Optimal Strategy and Case Analysis
11.1 Determining the Optimal Risk Management Strategy
11.2 Analyzing an Insurance Program
The Effect of Human Capital on Asset Allocation and Risk Reduction
12.1 Asset Allocation and Risk Reduction
Summary
Practice Problems
Solutions
2023 CFA© Program Curriculum Level III Volumes 5 Institutional Investors, Other Topics in Portfolio Management, and Cases (CFA Institute) (Z-Library)
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Portfolio Management
12
Portfolio Management for Institutional Investors
24
Portfolio Management for Institutional Investors
Institutional Investors: Types and Common Characteristics
1.1 Institutional Investors: Common Characteristics
Overview of Investment Policy
Pension Funds: Types and Stakeholders
3.1 Stakeholders
Pension Funds: Liabilities, Investment Horizon, and Liquidity Needs
4.1 Liabilities and Investment Horizon
4.2 Liquidity Needs
Pension Funds: External Constraints
5.1 Legal and Regulatory Constraints
5.2 Tax and Accounting Constraints
Pension Funds: Risk Considerations
Pension Funds: Investment Objectives and Asset Allocation
7.1 Investment Objectives
7.2 Asset Allocation by Pension Plans
Sovereign Wealth Funds: Types and Stakeholders
8.1 Stakeholders
Sovereign Wealth Funds: Liabilities, Investment Horizon, Liquidity Needs, and External Constraints
9.1 Liabilities and Investment Horizons
9.2 Liquidity Needs
9.3 External Constraints Affecting Investment
Sovereign Wealth Funds: Investment Objectives and Asset Allocation
10.1 Investment Objectives
10.2 Asset Allocation by Sovereign Wealth Funds
University Endowments and Private Foundations: Introduction and External Constraints
11.1 External Constraints Affecting Investment
University Endowments: Stakeholders, Liabilities, Investment Horizon, and Liquidity Needs
12.1 University Endowments—Liabilities and Investment Horizon
12.2 University Endowments—Liquidity Needs
Private Foundations: Types, Stakeholders, Liabilities, Investment Horizon, and Liquidity Needs
13.1 Private Foundations—Liabilities and Investment Horizon
13.2 Private Foundations—Liquidity Needs
University Endowments: Investment Objectives and Asset Allocation
14.1 University Endowments
14.2 Asset Allocation
Private Foundations: Investment Objectives and Asset Allocation
15.1 Private Foundations
Banks and Insurers: Introduction and External Constraints
16.1 External Constraints Affecting Investment
Banks: Stakeholders, Liabilities, Investment Horizon, and Liquidity Needs
17.1 Banks—Liabilities and Investment Horizon
17.2 Banks—Liquidity Needs
Insurers: Stakeholders, Liabilities, Investment Horizon, and Liquidity Needs
18.1 Insurers—Liabilities and Investment Horizon
18.2 Insurers—Liquidity Needs
Banks and Insurers: Investment Objectives
19.1 Banks
19.2 Insurers
Banks and Insurers: Balance Sheet Management and Investment Considerations
Banks and Insurers: Investment Strategies and Effects on Asset and Liability Volatility
Banks and Insurers: Implementation of Portfolio Decisions
Summary
Practice Problems
Solutions
13
Trading, Performance Evaluation, and Manager Selection
25
Trade Strategy and Execution
Introduction
Motivations to Trade
2.1 Profit Seeking
2.2 Risk Management/Hedging Needs
2.3 Cash Flow Needs
2.4 Corporate Actions/Index Reconstitutions/Margin Calls
Trading Strategies and Strategy Selection
3.1 Trade Strategy Inputs
Reference Prices
4.1 Pre-­Trade Benchmarks
4.2 Intraday Benchmarks
4.3 Post-­Trade Benchmarks
4.4 Price Target Benchmarks
Trading Strategies
5.1 Short-­Term Alpha Trade
5.2 Long-­Term Alpha Trade
5.3 Risk Rebalance Trade
5.4 Client Redemption Trade
5.5 New Mandate Trade
Trade Execution
6.1 Trade Implementation Choices
6.2 Algorithmic Trading
Comparison of Markets
7.1 Equities
7.2 Fixed Income
7.3 Exchange-­Traded Derivatives
7.4 Over-­the-­Counter Derivatives
7.5 Spot Foreign Exchange (Currency)
Trade Cost Measurement
8.1 Implementation Shortfall
8.2 Expanded Implementation Shortfall
Evaluating Trade Execution
9.1 Arrival Price
9.2 VWAP
9.3 TWAP
9.4 Market on Close
9.5 Market-­Adjusted Cost
9.6 Added Value
Trade Governance
10.1 Meaning of Best Order Execution within the Relevant Regulatory Framework
10.2 Factors Used to Determine the Optimal Order Execution Approach
10.3 List of Eligible Brokers and Execution Venues
10.4 Process Used to Monitor Execution Arrangements
Summary
Practice Problems
Solutions
26
Portfolio Performance Evaluation
Introduction
Introduction to Performance Evaluation and Attribution
2.1 Performance Attribution
Equity Return Attribution
3.1 A Simple Return Attribution Example
3.2 Equity Return Attribution—The Brinson–Hood–Beebower Model
3.3 Brinson–Fachler Model
Fixed- Income Return Attribution
4.1 Fixed-­Income Return Attribution
Risk Attribution
Return Attribution Analysis at Multiple Levels
6.1 Macro Attribution—An Example
6.2 Micro Attribution—An Example
Asset-­Based and Liability-­Based Benchmarks
7.1 Asset-­Based Benchmarks
Benchmark Properties, Evaluating Benchmark Quality, and Choosing the Correct Benchmark
8.1 Evaluating Benchmark Quality: Analysis Based on a Decomposition of Portfolio Holdings and Returns
8.2 Importance of Choosing the Correct Benchmark
Benchmarking Alternative Investments
9.1 Benchmarking Hedge Fund Investments
9.2 Benchmarking Real Estate Investments
9.3 Benchmarking Private Equity
9.4 Benchmarking Commodity Investments
9.5 Benchmarking Managed Derivatives
9.6 Benchmarking Distressed Securities
Performance Appraisal: Risk-­Based Measures
10.1 Distinguishing Investment Skill from Luck
10.2 Appraisal Measures
Performance Appraisal: Capture Ratios and Drawdowns
11.1 Capture Ratios
11.2 Drawdown
Evaluation of Investment Manager Skill
12.1 Performance Attribution Analysis
12.2 Appraisal Measures
12.3 Sample Evaluation of Skill
Summary
Practice Problems
Solutions
27
Investment Manager Selection
Introduction
A Framework for Investment Manager Search and Selection
2.1 Defining the Manager Universe
Type I and Type II Errors in Manager Selection
3.1 Qualitative considerations in Type I and Type II errors
3.2 Performance implications of Type I and Type II errors
Quantitative Elements of Manager Search and Selection
4.1 Style Analysis
Capture Ratios and Drawdowns in Manager Evaluation
The Manager's Investment Philosophy
6.1 Investment Philosophy
6.2 Investment Personnel
The Manager's Investment Decision-­making Process
7.1 Signal Creation (Idea Generation)
7.2 Signal Capture (Idea Implementation)
7.3 Portfolio Construction
7.4 Monitoring the Portfolio
Operational Due Diligence
8.1 Firm
8.2 Investment Vehicle
8.3 Evaluation of the Investment’s Terms
Management Fees1
9.1 Assets under Management Fees
9.2 Performance-­Based Fees
Summary
Practice Problems
Solutions
14
Cases in Portfolio Management and Risk Management
28
Case Study in Portfolio Management: Institutional
Introduction
Background: Liquidity Management
2.1 Liquidity Profiling and Time-­to-­Cash
2.2 Rebalancing, Commitments
2.3 Stress Testing
2.4 Derivatives
2.5 Earning an Illiquidity Premium
QUINCO Case: Background
3.1 Quadrivium University Investment Company (QUINCO)
3.2 Investment Strategy: Background and Evolution
QUINCO Case: Strategic Asset Allocation
QUINCO Case: Liquidity Management
QUINCO Case: Asset Manager Selection
QUINCO Case: Tactical Asset Allocation
QUINCO Case: Asset Allocation Rebalancing
QUINCO Case: ESG Integration
Summary
Practice Problems
Solutions
29
Case Study in Risk Management: Private Wealth
Introduction and Case Background
1.1 Background of Eurolandia
1.2 The Schmitt Family in Their Early Career Stage
Identification and Analysis of Risk Exposures: Early Career Stage
2.1 Specify the Schmitts’ financial objectives
2.2 Identification of risk exposures
2.3 Analysis of identified risk
Risk Management Recommendations: Early Career Stage
3.1 Recommendations for managing risks
3.2 Monitoring outcomes and risk exposures
Risk Management Considerations associated with Home Purchase
4.1 Review of risk Management Arrangements Following the House Purchase
Identification and Analysis of Risk Exposures: Career Development Stage
5.1 Case Facts: The Schmitts Are 45
5.2 Financial Objectives in the Career Development Stage
5.3 Identification and Evaluation of Risks in the Career Development Stage
Risk Management Recommendations: Career Development Stage
6.1 Disability insurance
6.2 Life insurance
6.3 Investment risk recommendations
6.4 Retirement planning recommendation
6.5 Additional suggestions
Identification and Analysis of Risk Exposures: Peak Accumulation Stage
7.1 Review of Objectives, Risks, and Methods of Addressing Them
Assessment of and Recommendations concerning Risk to Retirement Lifestyle and Bequest Goals: Peak Accumulation Stage
8.1 Analysis of Investment Portfolio
8.2 Analysis of Asset Allocation
8.3 Recommendations for Risk Management at Peak Accumulation Stage
Identification and Analysis of Retirement Objectives, Assets and Drawdown Plan: Retirement Stage
9.1 Key Issues and Objectives
9.2 Analysis of Retirement Assets and Drawdown Plan
Income and Investment Portfolio Recommendations: Retirement Stage
10.1 Investment Portfolio Analysis and Recommendations
10.2 The Advisor’s Recommendations for Investment Portfolio in Retirement
Summary
Practice Problems
Solutions
30
Integrated Cases in Risk Management: Institutional
Introduction
Financial Risks Faced by Institutional Investors
2.1 Long-­Term Perspective
2.2 Dimensions of Financial Risk Management
2.3 Risk Considerations for Long-­Term Investors
2.4 Risks Associated with Illiquid Asset Classes
2.5 Managing Liquidity Risk
2.6 Enterprise Risk Management for Institutional Investors
Environmental and Social Risks Faced by Institutional Investors
3.1 Universal Ownership, Externalities, and Responsible Investing
3.2 Material Environmental Issues for an Institutional Investor
3.3 Material Social Issues for an Institutional Investor
Case Study
1 Case Study: Introduction
2 Case Study: Background
3 R-­SWF’S Investments: 1.0
Investment Committee Meeting 1.0
4 R-­SWF’S Investments: 2.0
Investment Committee Meeting 2.0
5 R-­SWF’S Investments: 3.0
2023 CFA© Program Curriculum Level III Volumes 6 Ethics and Professional Standards (CFA Institute) (Z-Library)
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Ethical and Professional Standards
15
Ethical and Professional Standards (1)
31
Code of Ethics and Standards of Professional Conduct
Preface
Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct
Standards of Practice Handbook
Summary of Changes in the Eleventh Edition
CFA Institute Professional Conduct Program
Adoption of the Code and Standards
Acknowledgments
Ethics and the Investment Industry
Why Ethics Matters
CFA Institute Code of Ethics and Standards of Professional Conduct
Preamble
The Code of Ethics
Standards of Professional Conduct
32
Guidance for Standards I–VII
Standard I(A): Professionalism - Knowledge of the Law
Standard I(A) Knowledge of the Law
Guidance
Standard I(A): Recommended Procedures
Members and Candidates
Distribution Area Laws
Legal Counsel
Dissociation
Firms
Standard I(A): Application of the Standard
Example 1 (Notification of Known Violations):
Example 2 (Dissociating from a Violation):
Example 3 (Dissociating from a Violation):
Example 4 (Following the Highest Requirements):
Example 5 (Following the Highest Requirements):
Example 6 (Laws and Regulations Based on Religious Tenets):
Example 7 (Reporting Potential Unethical Actions):
Example 8 (Failure to Maintain Knowledge of the Law):
Standard I(B): Professionalism - Independence and Objectivity
Guidance
Standard I(B): Recommended Procedures
Standard I(B): Application of the Standard
Example 1 (Travel Expenses):
Example 2 (Research Independence):
Example 3 (Research Independence and Intrafirm Pressure):
Example 4 (Research Independence and Issuer Relationship Pressure):
Example 5 (Research Independence and Sales Pressure):
Example 6 (Research Independence and Prior Coverage):
Example 7 (Gifts and Entertainment from Related Party):
Example 8 (Gifts and Entertainment from Client):
Example 9 (Travel Expenses from External Manager):
Example 10 (Research Independence and Compensation Arrangements):
Example 11 (Recommendation Objectivity and Service Fees):
Example 12 (Recommendation Objectivity):
Example 13 (Influencing Manager Selection Decisions):
Example 14 (Influencing Manager Selection Decisions):
Example 15 (Fund Manager Relationships):
Example 16 (Intrafirm Pressure):
Standard I(C): Professionalism – Misrepresentation
Guidance
Standard I(C): Recommended Procedures
Factual Presentations
Qualification Summary
Verify Outside Information
Maintain Webpages
Plagiarism Policy
Standard I(C): Application of the Standard
Example 1 (Disclosure of Issuer-­Paid Research):
Example 2 (Correction of Unintentional Errors):
Example 3 (Noncorrection of Known Errors):
Example 4 (Plagiarism):
Example 5 (Misrepresentation of Information):
Example 6 (Potential Information Misrepresentation):
Example 7 (Plagiarism):
Example 8 (Plagiarism):
Example 9 (Plagiarism):
Example 10 (Plagiarism):
Example 11 (Misrepresentation of Information):
Example 12 (Misrepresentation of Information):
Example 13 (Avoiding a Misrepresentation):
Example 14 (Misrepresenting Composite Construction):
Example 15 (Presenting Out-­of-­Date Information):
Example 16 (Overemphasis of Firm Results):
Standard I(D): Professionalism – Misconduct
Guidance
Standard I(D): Recommended Procedures
Standard I(D): Application of the Standard
Example 1 (Professionalism and Competence):
Example 2 (Fraud and Deceit):
Example 3 (Fraud and Deceit):
Example 4 (Personal Actions and Integrity):
Example 5 (Professional Misconduct):
Standard II(A): Integrity of Capital Markets - Material Nonpublic Information
Standard II(A) Material Nonpublic Information
Guidance
Standard II(A): Recommended Procedures
Achieve Public Dissemination
Adopt Compliance Procedures
Adopt Disclosure Procedures
Issue Press Releases
Firewall Elements
Appropriate Interdepartmental Communications
Physical Separation of Departments
Prevention of Personnel Overlap
A Reporting System
Personal Trading Limitations
Record Maintenance
Proprietary Trading Procedures
Communication to All Employees
Standard II(A): Application of the Standard
Example 1 (Acting on Nonpublic Information):
Example 2 (Controlling Nonpublic Information):
Example 3 (Selective Disclosure of Material Information):
Example 4 (Determining Materiality):
Example 5 (Applying the Mosaic Theory):
Example 6 (Applying the Mosaic Theory):
Example 7 (Analyst Recommendations as Material Nonpublic Information):
Example 8 (Acting on Nonpublic Information):
Example 9 (Mosaic Theory):
Example 10 (Materiality Determination):
Example 11 (Using an Expert Network):
Example 12 (Using an Expert Network):
Standard II(B): Integrity of Capital Markets - Market Manipulation
Guidance
Standard II(B): Application of the Standard
Example 1 (Independent Analysis and Company Promotion):
Example 2 (Personal Trading Practices and Price):
Example 3 (Creating Artificial Price Volatility):
Example 4 (Personal Trading and Volume):
Example 5 (“Pump-­Priming” Strategy):
Example 6 (Creating Artificial Price Volatility):
Example 7 (Pump and Dump Strategy):
Example 8 (Manipulating Model Inputs):
Example 9 (Information Manipulation):
Standard III(A): Duties to Clients - Loyalty, Prudence, and Care
Standard III(A) Loyalty, Prudence, and Care
Guidance
Standard III(A): Recommended Procedures
Regular Account Information
Client Approval
Firm Policies
Standard III(A): Application of the Standard
Example 1 (Identifying the Client—Plan Participants):
Example 2 (Client Commission Practices):
Example 3 (Brokerage Arrangements):
Example 4 (Brokerage Arrangements):
Example 5 (Client Commission Practices):
Example 6 (Excessive Trading):
Example 7 (Managing Family Accounts):
Example 8 (Identifying the Client):
Example 9 (Identifying the Client):
Example 10 (Client Loyalty):
Example 11 (Execution-­Only Responsibilities):
Standard III(B): Duties to Clients - Fair Dealing
Guidance
Standard III(B): Recommended Procedures
Develop Firm Policies
Disclose Trade Allocation Procedures
Establish Systematic Account Review
Disclose Levels of Service
Standard III(B): Application of the Standard
Example 1 (Selective Disclosure):
Example 2 (Fair Dealing between Funds):
Example 3 (Fair Dealing and IPO Distribution):
Example 4 (Fair Dealing and Transaction Allocation):
Example 5 (Selective Disclosure):
Example 6 (Additional Services for Select Clients):
Example 7 (Minimum Lot Allocations):
Example 8 (Excessive Trading):
Example 9 (Limited Social Media Disclosures):
Example 10 (Fair Dealing between Clients):
Standard III(C): Duties to Clients – Suitability
Guidance
Standard III(C): Recommended Procedures
Investment Policy Statement
Regular Updates
Suitability Test Policies
Standard III(C): Application of the Standard
Example 1 (Investment Suitability—Risk Profile):
Example 2 (Investment Suitability—Entire Portfolio):
Example 3 (IPS Updating):
Example 4 (Following an Investment Mandate):
Example 5 (IPS Requirements and Limitations):
Example 6 (Submanager and IPS Reviews):
Example 7 (Investment Suitability—Risk Profile):
Example 8 (Investment Suitability):
Standard III(D): Duties to Clients - Performance Presentation
Guidance
Standard III(D): Recommended Procedures
Apply the GIPS Standards
Compliance without Applying GIPS Standards
Standard III(D): Application of the Standard
Example 1 (Performance Calculation and Length of Time):
Example 2 (Performance Calculation and Asset Weighting):
Example 3 (Performance Presentation and Prior Fund/Employer):
Example 4 (Performance Presentation and Simulated Results):
Example 5 (Performance Calculation and Selected Accounts Only):
Example 6 (Performance Attribution Changes):
Example 7 (Performance Calculation Methodology Disclosure):
Example 8 (Performance Calculation Methodology Disclosure):
Standard III(E): Duties to Clients - Preservation of Confidentiality
Guidance
Standard III(E): Recommended Procedures
Communicating with Clients
Standard III(E): Application of the Standard
Example 1 (Possessing Confidential Information):
Example 2 (Disclosing Confidential Information):
Example 3 (Disclosing Possible Illegal Activity):
Example 4 (Disclosing Possible Illegal Activity):
Example 5 (Accidental Disclosure of Confidential Information):
Standard IV(A): Duties to Employers – Loyalty
Standard IV(A) Loyalty
Guidance
Standard IV(A): Recommended Procedures
Competition Policy
Termination Policy
Incident-­Reporting Procedures
Employee Classification
Standard IV(A): Application of the Standard
Example 1 (Soliciting Former Clients):
Example 2 (Former Employer’s Documents and Files):
Example 3 (Addressing Rumors):
Example 4 (Ownership of Completed Prior Work):
Example 5 (Ownership of Completed Prior Work):
Example 6 (Soliciting Former Clients):
Example 7 (Starting a New Firm):
Example 8 (Competing with Current Employer):
Example 9 (Externally Compensated Assignments):
Example 10 (Soliciting Former Clients):
Example 11 (Whistleblowing Actions):
Example 12 (Soliciting Former Clients):
Example 13 (Notification of Code and Standards):
Example 14 (Leaving an Employer):
Example 15 (Confidential Firm Information):
Standard IV(B): Duties to Employers - Additional Compensation Arrangements
Guidance
Standard IV(B): Recommended Procedures
Standard IV(B): Application of the Standard
Example 1 (Notification of Client Bonus Compensation):
Example 2 (Notification of Outside Compensation):
Example 3 (Prior Approval for Outside Compensation):
Standard IV(C): Duties to Employers - Responsibilities of Supervisors
Guidance
Standard IV(C): Recommended Procedures
Codes of Ethics or Compliance Procedures
Adequate Compliance Procedures
Implementation of Compliance Education and Training
Establish an Appropriate Incentive Structure
Standard IV(C): Application of the Standard
Example 1 (Supervising Research Activities):
Example 2 (Supervising Research Activities):
Example 3 (Supervising Trading Activities):
Example 4 (Supervising Trading Activities and Record Keeping):
Example 5 (Accepting Responsibility):
Example 6 (Inadequate Procedures):
Example 7 (Inadequate Supervision):
Example 8 (Supervising Research Activities):
Example 9 (Supervising Research Activities):
Standard V(A): Investment Analysis, Recommendations, and Actions - Diligence and Reasonable Basis
Standard V(A) Diligence and Reasonable Basis
Guidance
Standard V(A): Recommended Procedures
Standard V(A): Application of the Standard
Example 1 (Sufficient Due Diligence):
Example 2 (Sufficient Scenario Testing):
Example 3 (Developing a Reasonable Basis):
Example 4 (Timely Client Updates):
Example 5 (Group Research Opinions):
Example 6 (Reliance on Third-­Party Research):
Example 7 (Due Diligence in Submanager Selection):
Example 8 (Sufficient Due Diligence):
Example 9 (Sufficient Due Diligence):
Example 10 (Sufficient Due Diligence):
Example 11 (Use of Quantitatively Oriented Models):
Example 12 (Successful Due Diligence/Failed Investment):
Example 13 (Quantitative Model Diligence):
Example 14 (Selecting a Service Provider):
Example 15 (Subadviser Selection):
Example 16 (Manager Selection):
Example 17 (Technical Model Requirements):
Standard V(B): Investment Analysis, Recommendations, and Actions - Communication with Clients and Prospective Clients
Guidance
Standard V(B): Recommended Procedures
Standard V(B): Application of the Standard
Example 1 (Sufficient Disclosure of Investment System):
Example 2 (Providing Opinions as Facts):
Example 3 (Proper Description of a Security):
Example 4 (Notification of Fund Mandate Change):
Example 5 (Notification of Fund Mandate Change):
Example 6 (Notification of Changes to the Investment Process):
Example 7 (Notification of Changes to the Investment Process):
Example 8 (Notification of Changes to the Investment Process):
Example 9 (Sufficient Disclosure of Investment System):
Example 10 (Notification of Changes to the Investment Process):
Example 11 (Notification of Errors):
Example 12 (Notification of Risks and Limitations):
Example 13 (Notification of Risks and Limitations):
Example 14 (Notification of Risks and Limitations):
Standard V(C): Investment Analysis, Recommendations, and Actions - Record Retention
Guidance
Standard V(C): Recommended Procedures
Standard V(C): Application of the Standard
Example 1 (Record Retention and IPS Objectives and Recommendations):
Example 2 (Record Retention and Research Process):
Example 3 (Records as Firm, Not Employee, Property):
Standard VI(A): Conflicts of Interest - Disclosure of Conflicts
Standard VI(A) Disclosure of Conflicts
Guidance
Standard VI(A): Recommended Procedures
Standard VI(A): Application of the Standard
Example 1 (Conflict of Interest and Business Relationships):
Example 2 (Conflict of Interest and Business Stock Ownership):
Example 3 (Conflict of Interest and Personal Stock Ownership):
Example 4 (Conflict of Interest and Personal Stock Ownership):
Example 5 (Conflict of Interest and Compensation Arrangements):
Example 6 (Conflict of Interest, Options, and Compensation Arrangements):
Example 7 (Conflict of Interest and Compensation Arrangements):
Example 8 (Conflict of Interest and Directorship):
Example 9 (Conflict of Interest and Personal Trading):
Example 10 (Conflict of Interest and Requested Favors):
Example 11 (Conflict of Interest and Business Relationships):
Example 12 (Disclosure of Conflicts to Employers):
Standard VI(B): Conflicts of Interest - Priority of Transactions
Guidance
Standard VI(B): Recommended Procedures
Standard VI(B): Application of the Standard
Example 1 (Personal Trading):
Example 2 (Trading for Family Member Account):
Example 3 (Family Accounts as Equals):
Example 4 (Personal Trading and Disclosure):
Example 5 (Trading Prior to Report Dissemination):
Standard VI(C): Conflicts of Interest - Referral Fees
Guidance
Standard VI(C): Recommended Procedures
Standard VI(C): Application of the Standard
Example 1 (Disclosure of Referral Arrangements and Outside Parties):
Example 2 (Disclosure of Interdepartmental Referral Arrangements):
Example 3 (Disclosure of Referral Arrangements and Informing Firm):
Example 4 (Disclosure of Referral Arrangements and Outside Organizations):
Example 5 (Disclosure of Referral Arrangements and Outside Parties):
Standard VII(A): Responsibilities as a CFA Institute Member or CFA Candidate - Conduct as Participants in CFA Institute Programs
Standard VII(A) Conduct as Participants in CFA Institute Programs
Guidance
Standard VII(A): Application of the Standard
Example 1 (Sharing Exam Questions):
Example 2 (Bringing Written Material into Exam Room):
Example 3 (Writing after Exam Period End):
Example 4 (Sharing Exam Content):
Example 5 (Sharing Exam Content):
Example 6 (Sharing Exam Content):
Example 7 (Discussion of Exam Grading Guidelines and Results):
Example 8 (Compromising CFA Institute Integrity as a Volunteer):
Example 9 (Compromising CFA Institute Integrity as a Volunteer):
Standard VII(B): Responsibilities as a CFA Institute Member or CFA Candidate - Reference to CFA Institute, the CFA Designation, and the CFA Program
Guidance
Standard VII(B): Recommended Procedures
Standard VII(B): Application of the Standard
Example 1 (Passing Exams in Consecutive Years):
Example 2 (Right to Use CFA Designation):
Example 3 (“Retired” CFA Institute Membership Status):
Example 4 (Stating Facts about CFA Designation and Program):
Example 5 (Order of Professional and Academic Designations):
Example 6 (Use of Fictitious Name):
Practice Problems
Solutions
33
Application of the Code and Standards: Level III
Introduction
Sovereign Investment Corporation
Anthony Corrales, CFA, Partner, Hedge Fund Investors
Ani Mehrotra, CFA, Junior Analyst, National Investments
Marcia Lopez
David Hockett and Team
The Kochanskis
Castle Biotechnology Case: David Plume, PhD, CFA
David Plume, PhD, CFA
Castle Biotechnology Case: Sandra Benning, CFA and Claris Deacon
Claris Deacon
Lionsgate Limited & Bank of Australia Case: Tony Hill and Team
Tony Hill and Team
Lionsgate Limited & Bank of Australia Case: Rob Portman, CFA; Kirk Graeme, CFA; The Delaney's; David Milgram
Kirk Graeme, CFA
The Delaneys
David Milgram
Gabby Sim
Practice Problems
Solutions
16
Ethical and Professional Standards (2)
34
Asset Manager Code of Professional Conduct
Introduction, Adopting the Code and Claiming Compliance
Adopting the Code and Claiming Compliance
Acknowledgement of Claim of Compliance to CFA Institute
General Principles of Conduct and Asset Manager Code of Professional Conduct
Asset Manager Code of Professional Conduct
Appendix 6: A. Loyalty to Clients
Appendix 6—Recommendations and Guidance
A. Loyalty to Clients
Appendix 6: B. Investment Process and Actions
Managers must:
Appendix 6: C. Trading
Managers must:
Appendix 6: D. Risk Management, Compliance and Support
Managers must:
Appendix 6: E. Performance and Evaluation
Managers must:
Appendix 6: F. Disclosures
Managers must:
Practice Problems
Solutions
35
Overview of the Global Investment Performance Standards
Objective and Scope of the GIPS Standards
1.1 Objective and Scope of the GIPS Standards
Fundamentals of Compliance
2.1 Definition of the Firm
2.2 Definition of Discretion
2.3 Other Fundamentals of Compliance
Time-­Weighted Return
3.1 Time-­Weighted Return
Miscellaneous Return Calculation Topics
4.1 Annualizing Returns
4.2 Treatment of Cash Equivalents
4.3 Treatment of Expenses and Fees
4.4 Valuation Requirements
Composite Time-­Weighted Return Calculations
5.1 Composite Time-­Weighted Return Calculations
Composites—Qualifying Portfolios and Defining Investment Strategies
6.1 Composites—Defining Investment Strategies
Composites—Including and Excluding Portfolios
Presentation and Reporting Requirements for Composites
8.1 Minimum Years of Performance
8.2 Required Elements of a GIPS Composite Report
8.3 Portability
8.4 Sample Reports
Verification
9.1 Scope of Verification
9.2 Verification Process
Summary
Practice Problems
Solutions
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