Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
If you own one fund run by Manager A, how many other funds of his or hers should you own if you value diversification?
None. Managers generally have ingrained investment habits that they apply to every pool of money they run; they'll rarely use a growth strategy on one portfolio and a value strategy on another.
2.
Why is portfolio overlap a greater risk for fund investors who also own individual stocks?
Because the investor's funds may also own this stock, making the investor's overall portfolio more concentrated than it seems. That means overlap.
3.
For purposes of diversification, which parts of the Morningstar Style Box should attract each other?
Opposite corners. Based on how the style box is structured, opposite corners will show the diversity.
4.
If you own one fund from a boutique fund family, how many other funds should you own from that same family if you value diversification?
None. If you own more than one fund run by a boutique or specialist shop, chances are you own two (or more) of the same thing. Boutiques focus on what they do best, and as a result owning more than one of their funds often results in overlap.
5.
If you find that you don't have a lot of overlap in your portfolio holdings, you may still be overexposed to one or two sectors of the market.
True. Many times, a fund will have a lot of holdings in one sector. For example, a growth fund may have a lot of tech or pharmaceutical stocks.
