SBU CFA 1 From Steve

8/14/2019 SBU CFA 1 From Steve

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Low Costs

No prospects, statements to all shareholders

Tax Efficiency

Investor trading does not create taxable transactions in fund

Redemption process

In-kind

Give underlying stocks

Push out lowest basis shares raises ETF portfoliocost basis

Flexibility

Variety


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Leveraged ETFs will underperform the multiple of the index they track,especially over long periods and during volatile markets.


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FAS - Direxion Daily Financial Bull 3X Shares

FAZ - Direxion Daily Financial Bear 3X Shares


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SRS Inverse 2X Dow Jones U.S. Real Estate Index

URE 2X Dow Jones U.S. Real Estate Index

IYR Dow Jones U.S. Real Estate Index

You didnt even make money holding the SRS (2X Bear)!!

2X Bear and 2X Bull produced the same outcome!!


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You would have been better off owning the Real estate index than holdingthe -2X Ultra shares.


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First, consider the difference between compound (i.e., geometric) return andsimple (single-period) return. Rg ~ E(r) (1/2)2. In this coin flippingexercise, E(r) = (1/2)(-50%) + (1/2)(100%) = 25%. But the compound(geometric return) is 0%. Using the approximation, Rc ~ .25 (1/2)(0.5625)= 0.03125.

The median value of terminal wealth is equal to initial wealth. Thedistribution of terminal wealth will be skewed to the right, however. Forexample, after two flips the terminal wealth distribution of an initial $100 is:


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The distribution of terminal wealth will be skewed to the right, however. Forexample, after two flips the terminal wealth distribution of an initial $100 is


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Unambiguous. The identities and weights of securities or factor exposuresconstituting the benchmark are clearly defined.

Investable. It is possible to forgo active management and simply hold thebenchmark. Is the index investable or is it an index fund (e.g., ETF) thatreflects portfolio management trading costs.

Measurable. The benchmarks return is readily calculable on a reasonablyfrequent basis.

Appropriate. The benchmark is consistent with the managers investmentstyle or area of expertise.

Reflective of current investment opinions. The manager has currentinvestment knowledge (be it positive, negative, or neutral) of the securities orfactor exposures within the benchmark.

Specified in advance. The benchmark is specified prior to the start of anevaluation period and known to all interested parties.

Owned. The investment manager should be aware of and acceptaccountability for the constituents and performance of the benchmark. It isencouraged that the benchmark be embedded in and integral to the

investment process and procedures of the investment manager.


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Broad Market Indexes In certain situations, market indexes are perfectlyacceptable as benchmarks, particularly as benchmarks for asset categoryperformance or for core type investment approaches in which the managerselects from a universe of securities similar in composition to thebenchmark. However, in other circumstances, the managers style may

deviate considerably from the style reflected in a market index. For example,assigning a micro-capitalization U.S. growth stock manager an S&P 500benchmark clearly violates the appropriateness criterion.

Style Indexes - Similar to broad market indexes, investment style indexesare often well known, easy to understand, and widely available. However,their ability to pass tests of benchmark validity can be problematic. Somestyle indexes contain weightings in certain securities and economic sectorsthat are much larger than what many managers consider prudent. Further,the definition of investment style implied in the benchmark may be

ambiguous or inconsistent with the investment process of the manager beingevaluated.


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With the exception of being measurable, the median account in a typicalcommercially available universe does not have the properties of a validbenchmark described above. One of the most significant deficiencies is that,although the universe can be named, the median account cannot bespecified in advance.


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These steps, though simple in appearance, constitute a complex task. Aproper benchmark must make a fine distinction between the managersnormal or policy investment decisions and the managers active investment

judgments.

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So the timing of the cash flow matters

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The TWR derives its name from the fact that each subperiod return withinthe full evaluation period receives a weight proportional to the length of thesubperiod relative to the length of the full evaluation period. That relationshipbecomes apparent if each subperiod return is expressed as the cumulativereturn over smaller time units.

TWR is unaffected by (neutralizes the impact of) external cash flows.

When managers have no control over timing of cash flows (e.g., mutualfunds), TWR is appropriate.

Requires portfolio valuation on each cash flow date.

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Sometimes called dollar-weighted return, MWR

MWR gives credit decreasing (increasing) invested capital prior tosubsequent poor (good) returns. It penalizes for doing the reverse.

When managers have control over timing of cash flows (e.g., capital calldowns in private equity, SIMM?), MWR may be appropriate.

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CFA Institute is a global association of investment professionals that traces

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its lineage back to the establishment of the Financial Analysts Federation(FAF) in 1947. Leadership of the FAF established an independentorganization the Institute of Chartered Financial Analysts (ICFA) toadminister the CFA credentialing program in 1962; and the ICFA

administered the first CFA exams in 1963. Later, the FAF and the ICFAmerged to become the Association for Investment Management andResearch (AIMR). In 2004, AIMR changed its name to CFA Institute.

Major Points to make:

CFA Institute predecessor organization founded 1947

First CFA Exam 1963

We have a broad mission that goes beyond the CFA Program

which serves as our namesake

Lifelong learning for members and public benefits of

ethical and competent practitioners.


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The 3 pillars on which CFA Institute is built are Ethics, Education, and

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Professional Excellence.


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The reason for that is that earning the CFA designation is a daunting task.

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Pass rates are low but actually overstate the true scope of the challenge.Only one in five candidates who enroll in the CFA Program end up earning aCFA Charter. Despite its rigor, the program has experienced exponentialenrollment growth (much of it internationally) and has been accepted as the

gold standard by the investment profession. The Economist, for example,ranked the CFA Program as the gold standard among investment analysisdesignations.

The educational and professional standards of the CFA program are thefoundation for the highest quality wealth management services and a robustwealth management process.


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No other designation within the investment management profession carries

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as much prestige as the CFA charter. The list of individuals who havecompleted the program reads like a Whos Who of the global investmentindustry and includes CEOs and partners of the top investment firms, world-renowned investment strategists, and leading academics.


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Employers around the world have embraced the CFA charter as a mark ofexcellence for recruiting talented investment professionals.

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More employers require or prefer candidates with the CFA charter.

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The CFA Program is a postgraduate-level, self-study program. It is organizedinto 3 levels, each culminating in a 6-hour examination. CFA Instituteadministers these exams throughout the world. Both the study materials andthe exams are the same for all candidates, regardless of where they prepareor where they sit for the exam.

The Level I examination is offered twice in each year (June and December);and the Levels II and III exams are offered once each year (June). Levels Iand II, and the afternoon section of Level III, are graded by machine. Themorning section of Level III requires candidates to write brief answers, and isgraded by CFA charterholders who are volunteers.

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Practicing professionals, assisted by a small professional staff, lead the examination process frombeginning to end. A group of professionals writes a new examination for each offering. There is no

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The process begins with a Global Practice Analysis. Teams of volunteers and professionals assemblefocus groups of employers and charterholders at sites around the world. Participants in these groupsare asked what knowledge, skills, and abilities they need to perform their tasks; and what knowledge,skills, and abilities they look for when hiring young professionals. The result of these meetings is theCandidate Body of Knowledge (CBOK), a continuously evolving outline of topics that CFAcandidates must master in order to pass the CFA examinations.

The Education Advisory Council (EAC) is a group of volunteer CFA charterholders who develop theCBOK, the broader Global Body of Investment Knowledge (not shown here), and the CFA curriculum.Most are practicing investment professionals and a few are university professors. The curriculum foreach level is a set of readings that convey the CBOK. Learning Outcome Statements (LOSs) areintegral tools used in the curriculum, and indicate what material in each reading is critical for masteringthe CBOK. At each level, the curriculum consists of 6 volumes and more than 2,500 pages ofreadings and LOSs.

The Council of Examiners (COE) is another committee of volunteers which writes each examination,using the curriculum as its guide. Like the EAC, all members are CFA charterholders and mostmembers are practicing professionals. A minority are university professors.

CFA Institute offers the examinations in centers throughout the world. The Level I examination isoffered twice in each year (June and December); and the Levels II and III exams are offered onceeach year (June). The examinations are returned to CFA Institute headquarters in Charlottesville,Virginia, USA for grading. Levels I and II, and the afternoon section of Level III, are graded bymachine. The morning section of Level III requires candidates to write brief answers, and is graded bycharterholders who volunteer to do so.

To assure that the same level of competence will result in passing the examinations each year, CFAInstitute employs a Standard Setting process, using the Modified Angoff Method. Teams of subjectmatter experts (all CFA charterholders) take the examinations, following which they determine,question-by-question, the performance of the just-qualified candidate. The results of theirpainstaking effort is input for the final stage in the process.

The charterholding members of the CFA Institute Board of Governors have the responsibility of settingthe minimum passing score for each examination each time it is offered. The Governors use theresults of Standard Setting, and other measures, in reaching their decisions.

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ETHICS IS THE CORE: At all 3 levels of the CFA program, the core of thecurr cu um an e exam na ons s cs an ro ess ona an ar s sym o zehere by the light blue core of each circle).

Each level of the CFA exam differs not only in the type of questions asked, but inthe subject material covered and the nature of the response required. As you begin

your career in investment management, you will likely be an equity analyst orassistant portfolio manager. At that career stage, senior colleagues will ask you touse basis investment tools and perform calculations. The Level I curriculum andexamination, typically taken by junior professionals, devotes a large share of itscontent to investment tools), which is shown here in grey. Knowledge of assetclasses and portfolio management constitute less of both the curriculum and examat Level I. The Level I exam focuses on the candidates knowledge andcomprehension.

In Level II, the candidate is maturing and growing . Now your work focuses less onthe use of basic tools and more on the nature of the assets to be analyzed. At thisLevel, the curriculum and the examination devote more attention to the nature ofasset classes. The Level II exam requires candidates to apply and analyze.

Level III reflects the requirements of a seasoned professional, someone whose titlemight be director of research or portfolio manager. The majority of the examinationis devoted to portfolio management, both in institutional and individual contexts.The Level III examination calls on candidates to synthesize and evaluate.

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The program uses 100% multiple choice questions at Level I, 100% item

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sets at Level II, and a combination of essays/problems and items sets atLevel III.

Item sets are comprised of a case or vignette followed by six multiple choice

questions. This approach allows candidates to demonstrate a deeperunderstanding of the material than traditional multiple choice questions.


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This graph shows the weighted average of the pass rates for the three levelsof the examinations over time.

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Those who hold the CFA charter enjoy a variety of benefits, not limited to theprestige of the charter itself. They can also participate in the global networkof local societies affiliated with CFA Institute and take advantage of lifelonglearning opportunities through local societies and CFA Institute.

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Although CFA Institute is best known for the CFA Program, it offers othereducation programs as well. One of these is the relatively new Certificate inInvestment Performance Measurement. Serving a well-defined market,those who analyze the performance of investment portfolios, this certificationhas been well-accepted by the investment profession.

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The 2 CIPM exams cover these topic areas.

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CFA Institute members and registered candidates of the CFA Program arespread throughout the world.

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For more information, or to enroll as a CFA candidate, visit our website,http://www.cfainstitute.org.

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SBU CFA 1 From Steve