Portfolio Management Pathway

CFA® Level III pathway, published weight 30–35%. Active equity, yield-curve and credit strategy, LDI, trade execution.

What the outline covers

Index-Based Equity Strategies
Active Equity Investing: Strategies
Active Equity Investing: Portfolio Construction
Liability-Driven and Index-Based Strategies
Yield Curve Strategies
Fixed-Income Active Management: Credit Strategies
Trade Strategy and Execution
Case Study in Portfolio Management: Institutional (Endowment)

Sample questions

These 5 questions are free in the app too. Try each one before opening the answer.

Question 1

A manager expects the yield curve to steepen with short rates unchanged. The most appropriate position is:

A. Extend duration across the curve
B. Buy the short end and sell the long end
C. Sell the short end and buy the long end
D. A duration-neutral butterfly

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B. Steepening means long yields rise relative to short yields, so long bonds lose. Overweight the short end and underweight the long end.

Reading: Portfolio Management Pathway — Yield Curve Strategies

Question 2

Relative to a duration-matched bullet, a barbell portfolio will outperform when the yield curve:

A. Shifts in a parallel fashion
B. Flattens
C. Steepens
D. Remains unchanged

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B. A barbell has greater convexity and benefits from a flattening, since the long-end holding gains more than the short-end holding loses.

Reading: Portfolio Management Pathway — Yield Curve Strategies

Question 3

A credit portfolio has spread duration of 4.5 and spreads widen by 30 basis points over a year in which spread carry is 2.0%. Ignoring defaults, excess return is closest to:

SD 4.5 · Δs +30bp · carry 2.0%

A. −1.35%
B. +0.65%
C. +2.00%
D. +3.35%

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B. EXR ≈ carry − (SD × Δs) = 2.00% − (4.5 × 0.30%) = 2.00% − 1.35% = +0.65%.

Reading: Portfolio Management Pathway — Fixed-Income Active Management: Credit Strategies

Question 4

Which execution benchmark is most vulnerable to manipulation by the trader being measured?

A. Arrival price
B. VWAP computed over the trader’s own participation window
C. Previous close
D. Implementation shortfall

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B. A trader who supplies a large share of volume in the measurement window influences the VWAP itself, weakening the benchmark.

Reading: Portfolio Management Pathway — Trade Strategy and Execution

Question 5

Compared with a fundamental concentrated strategy, a quantitative multifactor equity strategy typically exhibits:

A. Higher active share and higher idiosyncratic risk
B. Lower active share and risk sourced primarily from factor tilts
C. Identical active share and active risk
D. Lower active risk and higher stock-specific risk

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B. Quantitative strategies hold many names with small deviations, giving lower active share, with risk dominated by systematic factor exposures.

Reading: Portfolio Management Pathway — Active Equity Investing: Portfolio Construction

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