NISM Series XXI-B · Unit 10 of 12 · about 9% of the paper
Equity and fixed income portfolio strategies: NISM Series XXI-B notes and practice questions
Passive and active approaches, smart beta, core-satellite, and bond portfolio strategies.
What to know in Unit 10
- Passive and active.
- Smart beta and factors.
- Core-satellite.
- Bond strategies.
Key terms, examples and exam traps
Passive strategy
A passive strategy replicates an index to match its return at low cost without trying to outperform.
Example. A portfolio holds the index stocks in index weights.
Exam trap. This statement is false: A passive strategy seeks to beat the index.
Active strategy
An active strategy departs from the benchmark to earn higher returns, at higher cost and risk of underperformance.
Example. A manager overweights chosen stocks.
Exam trap. This statement is false: Active strategies guarantee outperformance.
Smart beta
Smart beta uses rules-based weights based on factors such as value or low volatility instead of market capitalisation.
Example. An index weights stocks by earnings rather than size.
Exam trap. This statement is false: Smart beta is a market-cap weighted index.
Factor investing
Factor investing targets return drivers such as value, momentum, quality and size across stocks.
Example. A portfolio tilts to high-quality stocks.
Exam trap. This statement is false: Factor investing ignores stock characteristics.
Core-satellite
A core-satellite approach holds a low-cost core, often passive, with smaller active satellites to seek extra return.
Example. A manager holds an index core and a few active bets.
Exam trap. This statement is false: Core-satellite is 100% active.
Growth and value styles
Growth investing seeks firms with high earnings growth, while value investing seeks stocks trading below their estimated worth.
Example. A manager buys a low P/E stock with solid earnings.
Exam trap. This statement is false: Value investing seeks the highest P/E.
Bond immunisation
Immunisation matches the portfolio's duration to the liability horizon so that interest rate changes have little net effect.
Example. A manager matches duration to a payout date.
Exam trap. This statement is false: Immunisation aims to maximise rate bets.
Laddering
A bond ladder spreads holdings evenly across maturities to manage reinvestment and interest rate risk.
Example. Bonds mature every year.
Exam trap. This statement is false: A ladder puts all funds in one maturity.
Barbell and bullet
A barbell holds short and long maturities, while a bullet concentrates holdings around one maturity.
Example. A barbell skips the intermediate bonds.
Exam trap. This statement is false: A bullet spreads across all maturities.
Active bond management
Active bond managers use views on rates, curve shape and credit spreads to earn more than the benchmark.
Example. A manager lengthens duration before rates fall.
Exam trap. This statement is false: Active bond managers never change duration.
Derivative overlay
Derivatives can be overlaid on a portfolio to adjust exposure or protect it without selling the underlying securities.
Example. A manager sells index futures to cut equity exposure.
Exam trap. This statement is false: Overlays require selling all holdings.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which statement best describes “Barbell and bullet”?
- A random walk means price changes are unpredictable because new information arrives randomly.
- Attribution splits excess return into sources such as asset allocation, security selection and interaction.
- Risk management is identifying, measuring, monitoring and controlling risks relative to the portfolio's objectives.
- A barbell holds short and long maturities, while a bullet concentrates holdings around one maturity.
Q2. Which term is described here? A passive strategy replicates an index to match its return at low cost without trying to outperform.
- Corporate governance
- Efficient market hypothesis
- Jensen's alpha
- Passive strategy
Q3. Which statement best describes “Bond immunisation”?
- Immunisation matches the portfolio's duration to the liability horizon so that interest rate changes have little net effect.
- An option gives the buyer the right but not the obligation to buy or sell at a strike price, for a premium paid to the seller.
- A random walk means price changes are unpredictable because new information arrives randomly.
- Anchoring is holding on to an initial reference, such as a purchase price, when making later decisions.
Q4. Which term is described here? Growth investing seeks firms with high earnings growth, while value investing seeks stocks trading below their estimated worth.
- Growth and value styles
- Current yield
- CPPI
- Correlation
Q5. Which term is described here? A bond ladder spreads holdings evenly across maturities to manage reinvestment and interest rate risk.
- Investor charter and grievances
- Laddering
- Money-weighted return
- Price and yield
Q6. Which term is described here? Smart beta uses rules-based weights based on factors such as value or low volatility instead of market capitalisation.
- Smart beta
- Tactical asset allocation
- Sharpe ratio
- Discounted cash flow
Frequently asked questions
How much of NISM Series XXI-B comes from Unit 10?
Unit 10 (Equity and fixed income portfolio strategies) usually carries about 9% of the questions. The whole exam has 120 questions and the pass mark is 60%.
What should I study in NISM Series XXI-B Unit 10?
Passive and active. Smart beta and factors. Core-satellite. Bond strategies.
Are these NISM Series XXI-B practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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