Definition of an Asset Class

CFA Level II Portfolio Management
#1

Question: With regard to asset allocation, which of the possible asset classes shown in Exhibit 1 is most likely to meet the three criteria Kumar mentioned?

Exhibit:

Equity- which consists of; Global public equity and global private equity

Fixed Income- Global investment-grade bonds and global high-yield bonds

Alternatives- Direct real estate investments and Bitcoin

Kumar states that, for purpose of asset allocation, the following criteria should be met: • asset classes should be diversifying, • asset classes should be mutually exclusive, and • assets within an asset class should be relatively homogenous.

I don’t get it -Fixed Income- Global investment-grade bonds and global high-yield bonds are homogeneous?

#2

Not likely.

#3

this is the answer
Answer: The fixed income option meets all three criteria Kumar mentioned. Equity does not meet the last criterion, as public and private equity are not homogenous. Similarly, alternatives do not meet the last criterion, as direct real estate investments and Bitcoin are not homogenous.

#4

It’s not a particularly good question, and they cannot even spell homogeneous correctly.

I wouldn’t spend any more time on it. On the exam, if the question is one of homogeneity, they’ll make it obvious.

2 Likes
#5

okie thank you