Question

In active portfolio management, anomaly-based investment strategies are common. Identify and explain these strategies. Also explain what would be the main factors that contribute to the high returns of these strategies.

Answer 1

Active portfolio management accepts that markets are not efficient in all forms of efficiency. Investors will get abnormal return through the following strategies:

• Growth investing style : Investors focuses on the stocks that have growth in future. Thus it will definitely bring returns
• Passive portfolio management : This defends the assumption of active portfolio management. Investors are required to hold market portfolio than holding single stocks to get abnormal returns
• Value investing style : This strategy finds out mispricing and qualified stocks so that the returns can be ensured
• International stock investment : World wide investment instruments will be included in the portfolio so that risk can be minimised and return can be ensured
• Portfolio management strategies : The assets in the portfolio are allocated in different types of investment for diversification. This will bring abnormal returns to the investors.