FRM Part II · FRM Exam Part II · Factors
A long-only smart beta fund tracks a benchmark and holds a value-tilted portfolio. Its active weights relative to the benchmark are: Stock X +3%, Stock Y +2%, Stock Z -5%. Portfolio active share is defined as half the sum of absolute active weights across all holdings. If these are the only non-zero active weights, what is the active share?
Active share is 5%. The absolute active weights sum to 3% plus 2% plus 5%, or 10%, and active share is half of that sum. Reporting 10% would forget to halve the total, which double counts overweights and underweights.
- A10%
- B5%Correct
- C3.3%
- D2%
Explanation
Sum of absolute active weights = 3 + 2 + 5 = 10%. Half of this is 5%. The 10% distractor omits the one-half factor; 3.3% averages the three weights; 2% is just one weight.
Did you get it right without looking?
One question tells you little. A timed set on Factors shows your real accuracy, how long you take and where you lose marks.
More Factors questions
- An analyst adds the momentum factor (UMD) to the Fama-French three-factor model to evaluate a fund. The fund's alpha falls from 2.4% to 0.3%…
- A risk manager adds the Fama-French HML factor to a CAPM regression for a deep-value equity fund and finds that the fund's CAPM alpha of 2% …
- Under the CAPM, a stock has a beta of 1.4, the risk-free rate is 3%, and the expected market return is 8%. What is the stock's expected retu…
- A fund sorts stocks on gross profitability, leverage and earnings stability, buying high scorers and shorting low scorers. Which statement b…
- A quant team defines a quality factor. Which characteristic set is most consistent with a typical quality definition in factor investing?
- A quantitative fund builds a momentum strategy that is long the top decile and short the bottom decile of stocks based on prior 12-month ret…