hi,
how do we diff between active management by large risk factor mismatch verses full blown active mgmt.?
Is duration constant for active mgmt by large risk factors?
Thanks,
Swetha
My opinion.
Active management by large risk factor mismatch - bond durations and other key factors different than benchmark’s.
Full blown management - more active trading, maybe includes short selling and derivatives positions.
hi Flashback,
the text doesn’t talk about duration change- its says only risk factor mismatch which are sector, coupon, issuer - so do we take duration as yes or no?
Schweser says manager might alter duration - not specifi?
From what I understand any mismatch that involves duration is active management because duration being the primary risk factor. The difference between Active management by large factor mismatch and full blown active management is of the benchmark as the reference point. Under full blown the manager can go beyond the benchmark securities for under/over weights he is not restricted to the benchmark only.
According to the curriculum, Active management by larger risk factor mismatches can start to deviate slightly away from the index’s duration, while Full-blown active management can involve aggressive mismatches on duration (and the other risk factors as well). The difference is subtle, but the degree of duration mismatching does seem to be the key differentiator.
The way I see it, Full-blown active management basically tells the underlying index to pound sand and does it’s own thing, while Larger risk factor mismatches still has some threads tied to the index (particularly involving duration matching).