KCHAPTER 23 QUESTIONS WITH
VERIFIED ANSWERS
A client holds a passively managed ETF wrap account. Due to market declines, the account has diverged
from the set asset allocation. The manager anticipates market increases in the oil and gas sector in the
next three months. What action will be taken in the wrap account?
A. None.
B. Rebalancing to the original asset allocation.
C. Actively overweighting in the oil and gas sector.
D. Increasing cash to take advantage of upcoming investment opportunities. - b)With the passive
approach to an ETF wrap account, a client's risk tolerance is derived, and the portfolio manager sets the
optimal asset allocation, establishing the portfolio with ongoing rebalancing back to the set asset mix. It
is only with the active approach that the portfolio manager can apply a short-term tactical approach by
actively overweighting or underweighting a sector and altering the client's asset allocation in the short
term to take advantage of market conditions.
In a mutual fund wrap, who directs the composition and weighting of individual funds within the
account?
A. Client.
B. Sub-advisor.
C. Overlay manager.
D. Investment advisor. - c)In a mutual fund wrap, the composition and weighting of individual funds
within the account are directed by the overlay manager while the investment management of the
underlying funds is conducted by the sub-Advisors. The overlay manager will take an active role by
rebalancing the client's holdings back to their target asset mix or by adding and removing funds to the
quality of the investment management.
What is the primary disadvantage of single-manager program managed accounts?
A. Increased trading costs.
B. Lack of regulatory oversight.
C. Minimal range of available securities.
D. Lack of independent professional approach to evaluating portfolio performance. - d)The primary
disadvantage with single manager programs is that there is no independent professional approach to
evaluating the ongoing performance and risk of the respective portfolios. This is as opposed to, for
example, ETF wraps and multi-manager programs which have an additional layer of oversight.
VERIFIED ANSWERS
A client holds a passively managed ETF wrap account. Due to market declines, the account has diverged
from the set asset allocation. The manager anticipates market increases in the oil and gas sector in the
next three months. What action will be taken in the wrap account?
A. None.
B. Rebalancing to the original asset allocation.
C. Actively overweighting in the oil and gas sector.
D. Increasing cash to take advantage of upcoming investment opportunities. - b)With the passive
approach to an ETF wrap account, a client's risk tolerance is derived, and the portfolio manager sets the
optimal asset allocation, establishing the portfolio with ongoing rebalancing back to the set asset mix. It
is only with the active approach that the portfolio manager can apply a short-term tactical approach by
actively overweighting or underweighting a sector and altering the client's asset allocation in the short
term to take advantage of market conditions.
In a mutual fund wrap, who directs the composition and weighting of individual funds within the
account?
A. Client.
B. Sub-advisor.
C. Overlay manager.
D. Investment advisor. - c)In a mutual fund wrap, the composition and weighting of individual funds
within the account are directed by the overlay manager while the investment management of the
underlying funds is conducted by the sub-Advisors. The overlay manager will take an active role by
rebalancing the client's holdings back to their target asset mix or by adding and removing funds to the
quality of the investment management.
What is the primary disadvantage of single-manager program managed accounts?
A. Increased trading costs.
B. Lack of regulatory oversight.
C. Minimal range of available securities.
D. Lack of independent professional approach to evaluating portfolio performance. - d)The primary
disadvantage with single manager programs is that there is no independent professional approach to
evaluating the ongoing performance and risk of the respective portfolios. This is as opposed to, for
example, ETF wraps and multi-manager programs which have an additional layer of oversight.
