Exhibit 1:
Description of Each Candidate Fund
FundDescriptionFurlingsFurlings Investment Partners combines sector views and security selection. The firm’s head manager uses several industry and economic indicators identified from his own experience during the last two decades, as well as his personal views on market flow dynamics, to determine how to position the fund on a sector basis. Sector deviations from the benchmark of 10% or more are common and are usually maintained for 12 to 24 months. At the same time, sector managers at Furlings use their expertise in dissecting financial statements and their understanding of the corporate branding and competitive landscape within sectors to build equally weighted baskets of securities within sectors. Each basket contains their 7 to 10 highest-conviction securities, favoring firms that have good governance, strong growth potential, competitive advantages such as branding, and attractive relative valuations. The Furlings master fund holds approximately 90 securities.
AsgardAsgard Investment Partners is a very large asset manager. It believes in investing in firms that have a strong business model and governance, reasonable valuations, solid capital structures with limited financial leverage, and above-average expected earnings growth for the next three years. Although the Asgard master fund invests in fewer than 125 securities, each sector analyst builds financial models that track as many as 50 firms. To support them in their task, analysts benefit from software developed by the Asgard research and technology group that provides access to detailed market and accounting information on 5,000 global firms, allowing for the calculation of many valuation and growth metrics and precise modeling of sources of cash-flow strengths and weaknesses within each business. Asgard analysts can also use the application to back-test strategies and build their own models to rank securities’ attractiveness according to their preferred characteristics. Security allocation is determined by a management team but depends heavily on a quantitative risk model developed by Asgard. Asgard has a low portfolio turnover.
TokraTokra Capital uses a factor-based strategy to rank securities from most attractive to least attractive. Each security is scored based on three metrics: price to book value (P/B), 12-month increase in stock price, and return on assets. Tokra’s managers have a strong risk management background. Their objective is to maximize their exposure to the most attractive securities using a total scoring approach subject to limiting single-security concentration below 2%, sector deviations below 3%, active risk below 4%, and annual turnover less than 40%, while having a market beta close to 1. The master fund holds approximately 400 positions out of a possible universe of more than 2,000 securities evaluated.
Which manager is most likely to get caught in a value trap?
A.Furlings
B.Asgard
C.Tokra
Solution
C is correct. A value trap occurs when a stock that appears to have an attractive valuation because of a low P/E and/or P/B multiple (or other relevant value proxies) appears cheap only because of its worsening growth prospects. Although a pitfall such as value trap is more common in fundamental investing, a quantitative process that relies on historical information and does not integrate future expectations about cash flows or profitability may be unable to detect a value trap.
A is an incorrect answer. Although Furlings is a top-down manager, its sector portfolios are built through investing in a small number of high-conviction securities after its analysts have dissected the financial statements and analyzed the competitive landscape and growth prospects. Managers at Furlings are more likely than managers at Tokra to be aware of the significant deteriorating prospects of a security they are considering for investment.
B is an incorrect answer. One of Asgard’s investment criteria is identifying firms that have good potential cash flow growth over the next three years. The firm has access to database and support tools, allowing its analysts to evaluate many potential growth metrics. Managers at Asgard are more likely than managers at Tokra to be aware of the significant deteriorating prospects of a security they are considering for investment.
这题文字太多了，感觉花了不少时间还做错了。有没有什么固定规律可以套用的？
比如我看到老师解答同样这道题时候说量化也有可能掉到value trap里，
所以能否总结出以下的规律？
1）fundamental和quantitative都有可能掉到value trap
2）看到P/E和P/B这样的字眼就有可能是这个选项？（value trap定义：A value trap occurs when a stock that appears to have an attractive valuation because of a low P/E and/or P/B multiple (or other relevant value proxies) appears cheap only because of its worsening growth prospects. 里面出现了这两个关键角度）
3）我可以理解只有bottom-up才会有value trap吗？毕竟是因为个股觉得便宜买才掉入value trap，top-down就不会有这样的问题？如果这个结论是对的话，是否这题能直接根据这条排除Furlings？
