Question 11 Which of the following is a concern for ETF investors but not open e

Question

Question 11 Which of the following is a concern for ETF investors but not open ended mutual fund investors? C a. Fund Expenses o b. Fund Performance C c. Fund Style d. Manager Reputation e. Secondary Market Liquidity You develop a price pattern based trading strategy that delivers abnormal excess returns. After trading on this strategy successfully for several years, you write a whitepaper detailing the strategy and release it to the public. Six months after this publication, the strategy no longer delivers abnormal excess returns. This is an example of a: a. Characteristic C b. Random Walk O c. Self-Destructing Anomaly d. Self-Fulfilling Prophecy e. Unlevered Beta Which of the following is a disadvantage of broad traditional index investing? o b. Less Subject to Behavioral Biases O c. Lesser Need to Monitor Manager of Fund a. Instant Diversification Across Many Securities d. Lower Fees Compared to Active Management e. Potential to Earn Large Alpha

Explanation / Answer

1) e is correct. ETF are traded on exchanges just like stocks. Open ended mutual funds are bought and sold directly with the AMC. Hence, secondary market liquidity is a concern for ETF and not for mutual fund.

2) c is correct. Self destruct is when a trading pattern is discovered by large number of speculator.

3) e is correct. The disadvantage of index investing is that there is no potential to earn alpha, is the difference between portfolio returns and the benchmark. Index investing tracks the benchmark returns.

4) b is correct. General partners are responsible for day to day operations of the fund.

5) e is correct. Premium = 12.48 / 12.00 - 1 = 4%

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