Breaking it Down: Chartered Investment Manager (CIM®) Designation

What is the CIM®?
The Chartered Investment Manager (CIM®) designation offers credentials as a prerequisite in order to qualify for a license to become a Portfolio Manager.

The Steps to CIM® Designation:

The Canadian Securities Institute (CSI) ™ offers two routes for obtaining your CIM designation.

The CSI Routes:

1. CSC + IMT + PMT = CIM (Can be found on CSI Website)
2. CSC + WME + AIS + PMT = CIM (Can be found on CSI Website)

Foran Financial supports the first option only with the following seminars:
• The Foran Investment Management Techniques seminar (IMT).
• CSI ‘s IMT™ includes 2 exams, the first is technical knowledge and the second is a case study which tests application.
• People find the second exam “not as easy”
• The Foran Portfolio Management Techniques seminar (PMT).

Note: Students can complete these Seminars in any order according to their personal schedules.

If you have any questions about the WME, IMT and PMT seminars, please leave a comment below or give us a call.

If you are interested in registering for a course or purchasing one of our products, you can do so online or over the phone.

Update: Vancouver Seminars

Vancouver seminars are going great! Here’s one response from the IMT session last week.

“Ron was (as always) SUPER great…..it’s the ONLY way to do one of these courses….for sure.”

Finishing up this weekend with PMT. If you are interested in joining us, get your order in soonest! We’re finalizing materials out tomorrow.

–Alison

Investment Management Techniques (IMT) Exam Prep

Questions

 

1. Which statements are correct about laddering?

I. Laddering involves building a portfolio of debt securities with staggered maturities, so that a portion of the portfolio matures at regular intervals.

II. A laddering portfolio is normally structured so that an equal dollar portion of the portfolio is placed in each maturity interval.

III. To maintain the ladder, as debt securities mature, the maturity amount is reinvested at the long-term end of the ladder. Over time, the portfolio comes to include only debt instruments that were originally purchased at the longest allowable maturity date.

IV. Purchases are made in all interest rate cycles, regardless of expectations, with the idea that over time this will even out overall returns.

a)            I, II
b)            I, III, IV
c)            I, II, IV
d)            I, II, III, IV

2. This risk relates to the hedge fund as a business entity and results from the fact that many hedge funds are small, newly created businesses that depend on one or more “star” managers for their success. Such organizations are highly focused on promoting and supporting the skills of the manager(s) and may lack the organizational depth, managerial talent and strategic planning capabilities necessary to ensure growth or even survival. For most hedge funds, this risk results from potential system failures as well as faulty settlement, reporting and accounting procedures. This risk is significant in single-strategy funds and needs to be addressed through due diligence. This is?

a)            first-order risk
b)            second-order risk
c)            third-order risk
d)            operational risk

Answers

1. d) I, II, III, IV
Chapter 10: Analysis of Debt Securities II: Price Volatility and Investment Strategies

2. d) operational risk
Chapter 12: Analysis of Non-Conventional Asset Classes and their Structures

For more Investment Management Techniques questions check out our IMT Quiz Book.

Keep up to date on our courses and products by liking us on Facebook and following our Twitter Feed.

AIS Exam Prep Questions

Questions

Chapter 10: International Investing
16. What are legal and accounting concerns with international investing?

I.          Shareholder (and bond investor) legal rights can vary by country, sometimes substantially.

II.        Corporate governance standards are not uniform in international markets, and especially in a number of the emerging economies markets.

III.       Some countries, such as China, have multi-tiered equity markets, where shares of the same company are issued with different associated shareholders rights and privileges, and even trade on different exchanges.

IV.       The investor must rely on foreign legal remedies in case shareholder (or lender) litigation occurs. Even if the domestic investor is successful in suing the foreign company in the investor’s domestic courts, it may prove very difficult to collect a judgment against the foreign company. Investors have to rely on whatever legal remedies are available in the company’s home country.

a)         I, II

b)         I, II, III

c)         I, II, IV

d)         I, II, III, IV

Chapter 12: Managing Your Client’s Investment Risk
12. What is correct about beta?

I.          Beta is a measure of the systematic risk of an investment. While it can be calculated for any type of investment, beta is usually calculated for equity securities or a portfolio of equity securities, such as an equity mutual fund.

II.        Beta is a measure of the relative risk of a security compared to the risk of the overall market, which is usually taken to be a broad market index of securities. The beta of a security can be calculated relative to any market index. For example, the beta of a mutual fund is often calculated relative to its benchmark index, which could be a broad market index such as the S&P/TSX Composite Index or the S&P 500 Index, or a narrow-based index, such as one of the S&P/TSX sub indices.

III.       By definition, the market index has a beta of 1. Securities with a beta of greater than 1 have more unsystematic risk than the market, and securities with a beta of less than 1 have less unsystematic risk than the market.

IV.       All else being equal, the greater the beta, the greater the risk of the security relative to the risk of the market. Technically, betas can be any number, positive or negative, but, when calculated relative to a broad-market index, it is unusual to find any security with a negative beta, or with betas exceeding 2 or 3.

a)         I, II

b)         I, II, III

c)         I, II, IV

d)         I, II, III, IV

Answers

16 d)    I, II, III, IV

12. c)   I, II, IV

Statement III is incorrect. Securities with betas of greater than 1 have more systematic risk (not unsystematic risk) than the market, and securities with betas of less than 1 have less systematic risk (not unsystematic risk) than the market.

AIS Exam Prep Questions

Questions

 

Chapter 1: The Canadian Wealth Accumulation Market
1. Classifications provide valuable insight into client needs and expectations, but each individual is unique. This is why the individual ____?____  process is so vital.

a)         life cycle
b)         life transition
c)         client discovery
d)         seed capital formation

Chapter 5: Fundamental Analysis

2. The P/E ratio, the price to book ratio and the price to sales ratio are examples of ?

a)         absolute valuation models
b)         relative valuation models
c)         MPT
d)         CAPM

Answers

1. c)     client discovery

2. b)     relative valuation models

Advanced Investment Strategies (AIS) Questions

Questions

 

Chapter 5: Fundamental Analysis

1. What is correct about fundamental analysis?

I.    Fundamental analysis is the study of variables (including management, sales, regulatory environment and labour costs) that affect the profitability of a company, its industry and the economy within which it operates.

II.  At the heart of fundamental analysis is the concept of intrinsic value. The intrinsic value of a security is the estimate or opinion of what the security’s market price should be, either currently or in the future.

III. Every firm’s stock has an intrinsic value determined by those variables that affect profitability, and the current price of a stock fluctuates toward that value.

IV. The task of fundamental analysis is to determine if the intrinsic value is above or below the current price of the stock. If the market price of the stock is above the intrinsic value, the analysis suggests that the stock should be purchased.

a)   I, II

b)   I, II, III

c)   II, III, IV

d)   I, II, III, IV

 

Chapter 9: Analysis of Non-Conventional Asset Classes and their Structures

2. Relative value hedge funds would include which of the following?

 

I.          Long/short equity funds

II.        merger or risk arbitrage

III.       convertible arbitrage

IV.       global macro funds

V.        fixed-income arbitrage strategies

VI.       equity market-neutral funds

 

a)         II, IV, V

b)         I, III, IV

c)         III, V, VI

d)         II, IV, V, VI

 

Answers

 

1. b)    I, II, III

Statement IV is incorrect. The stock should not be purchased if its market price trades above its intrinsic value.

 

2. c)     III, V, VI

Overview – Exchange Traded Funds

This is the first of what will be a monthly series of informational posts, delivering overviews on important financial topics. These will be relevant for anyone taking a financial planning course.

We are starting off with Exchange-traded funds, the fastest growing investment products, in sales in Canada.

Exchange-Traded Funds

Exchange-traded funds (ETFs) are baskets of securities that are traded like individual stocks on an exchange. ETFs are similar to index mutual funds in that they primarily invest in the equities, bonds or basket of commodities, that comprise a target index. The way in which an ETF is structured allows it to be far more tax efficient and cost effective than the average index mutual fund.

ETFs issue their shares in large blocks known as creation units. Usually~ creation unit is a block of25,000 to 200,000 ETF shares that track the index. Investors, known as authorized participants, do not purchase creation units with cash. Instead, they exchange, on an in-kind basis, baskets of securities that mirror the index to acquire the units.

 

Why buy Exchange-Traded Funds?

There is no evidence that mutual fund managers, on average, outperform their benchmark index. In an Industry Review by BlackRock, entitled “ETF Landscape, Q1, 2011,” the authors quote statistics from Standard and Poors, based on Standard and Poor’s indices versus actively managed mutual funds as at mid 2010. In the US, over the last five years to mid year 2010, the S&P 500 index outperformed 63.7% of actively managed large-cap US equity funds; the S&P MidCap 400 outperformed 76.7% of mid-cap US equity mutual funds; and the S&P SmallCap 600 Index outperformed 65.2% of small-cap US equity mutual funds.

For fixed income mutual funds, over the same five year period, according to “ETF Landscape”, more than three quarters of active fixed income managers failed to beat their respective benchmarks.

Investing in ETFs typically represents passive investing in a market index. By passively investing in the stocks or bonds of a specific index, the investor on average would have higher returns. Also, with passively managed ETFs, management fees are much lower than that for mutual funds.

 

ETF Markets

The ETF market began in Canada in 1990, with the introduction of Toronto Index Participation Shares (TIPS), based on the TSE (Toronto Stock Exchange) 35 index (now S&P/TSX 60 Index). As at May, 2011, assets under management (AUM) in ETFs internationally was close to $1.4 trillion, with slightly over $1 trillion in the US. As at May, 2011, the ETF market in Canada was approximately $41 billion (AUM). The largest sponsors of ETFs globally are: iShares, owned by BlackRock; State Street Global Advisors; and Vanguard. The three indices on which the ETFs are most widely based in terms of assets are: MSCI; S&P; and Barclay’s respectively. ETFs are currently trading on 18 exchanges, globally.

In Canada, there are several ETF sponsors including: BlackRock Asset Management Canada Ltd., iShares; Horizon Exchange Traded Funds; BMO Asset Management Inc.; Power Shares; and XTF Capital. BlackRock Asset Management Inc. recently offered to purchase Claymore Investments Inc. The ETF market in Canada has grown from $12.3 billion AUM on December 31st, 2005 to $40.8 billion as at mid-May, 2011. Over the previous five years, ETF assets under management in Canada has grown by 27% per year.

Authorized Participants

Authorized participants are usually institutional investors, specialists, or market-makers who have signed an agreement with and paid fees to a particular ETF sponsor. Becoming an authorized participant allows institutions to carry out direct in-kind transactions with the fund. After purchasing a creation unit, the authorized participant can split up and sell the individual shares of the unit on the open market. If small investors wish to buy units of the ETF, they can do so through brokers. The buying and selling of ETF units on the open market has no taxable effect on other ETF unitholders because the constituent securities are untouched.

Popular Exchange Traded Funds

In Canada the most popular ETF is offered by BlackRock and is the ishares S&P/TSX 60; symbol XIU. In the US, ETFs trade on the New York Stock Exchange and the American Stock Exchange. Amongst the largest ETFs in the US, are the GLD (Gold) ETF and the SPDR S&P 500 ETF. The SPDR ETFs are sponsored by State Street Global Advisors.

Other popular US ETFs include:

  • DIAMONDS, which are based on the Dow Jones Industrial Average (DJIA). Diamonds offer an investment that has a return close to the return on the DJIA.
  • NASDAQ-I 00 Index Tracking Stock ETF (commonly called “cubes” because of their trading symbol- QQQ).Cubes, based on the NADAQ 100 Index, offer an investment that has a return close to the return on the NASDAQ 100 Index.
  • Select Sector SPDRs which are ETFs based on nine of the 10 sub-indexes of the S&P 500.

Relationship between ETF’s Net Asset Value, the Value of the Underlying Asset, and the ETF’s Trading Price

ETFs have a NAVPS, which, like other managed products, is equal to the total market value of the ETF’s assets minus the ETF’s total liabilities, divided by the number of units outstanding. For all equity-based ETFs, the NAVPS is designed to closely track the value of the underlying index.

The NA VPS indicates the approximate value of an ETF compared to its underlying index. Small deviations between the ETF’s net asset value and the underlying index may occur because:

  • accrued dividends, if any, are held in the ETF and are distributed to unit holders on a quarterly basis; however, dividends do not accrue in the underlying index.
  • an ETF has a small management expense ratio, whereas the underlying index does not.

ETF Deviations

Most ETFs trade at a price close to their net asset value per share. Because ETFs are exchange-traded instruments, their price is based on supply and demand and may deviate slightly from the net asset value per share. The deviation is usually small.

If there is a significant difference between an ETF’ s market price and its net asset value per share, a potential arbitrage opportunity would exist. This opportunity arises because with ETFs it is possible for authorized participants to obtain new units of the ETF directly from the ETF’s custodian, not for cash, but in exchange for a basket of stocks that represent the stocks in the underlying index. It is possible for authorized participants to do the reverse – dispose of ETF units directly to the custodian in exchange for the basket of stocks.

For example, assume that there is only one stock in an ETF index. If the underlying stock is traded at $20; and the ETF share trades at $19, the authorized participant could short the stock at $20, and buy the ETF share at $19. The authorized participant could then exchange the ETF share to get the stock to cover the short sale. This would result in a profit of$1.00 [+$20- $19]. Due to arbitrage, there would be significant shorting in the stock and buying in the ETF shares which should cause the stock price and ETF price to converge.

 

The Use of ETFs in a Client Portfolio

ETFs typically represent passive investments, because the underlying basket of securities is typically fixed. However, some ETFs do use active management. By purchasing an ETF, an investor gains exposure to the securities of a particular basket or index. What needs to be decided is the asset class or geographical diversification exposure required by the investor. ETFs are used by: investors following a passive investment strategy; and active investors who use an ETF to establish exposure to an index for a desired length of time.

l have included three questions on ETFs that you might want to challenge.

QUESTION 1

What is not correct about ETFs versus mutual funds?

a)         ETFs are easier to trade

b)         ETFs, unlike mutual funds, can be sold short

c)         ETFs, like mutual funds, allow investors to buy or redeem the fund at the NA VPS, which in most cases is calculated every business day

d)         ETFs typically have lower MERs, relative to comparable mutual funds.

QUESTION 2

In respect to the value of ETFs, which of the following statements are correct?

I.     For all equity-based ETFs, the NAVPS is designed to closely track the value of the underlying index.

II.   The NA VPS indicates the approximate value of an ETF compared to its underlying index. Small deviations between the ETF’s net asset value and the underlying index may occur because accrued dividends, if any, are held in the ETF and are distributed to unit holders on a quarterly basis; however, dividends do not accrue in the underlying index.

Ill.   The NA VPS indicates the approximate value of an ETF compared to its underlying index. Small deviations between the ETF’ s net asset value and the underlying index may occur because an ETF has a small management expense ratio, whereas the underlying index does not.

IV. Because ETFs are exchanged-traded instruments, their price is based on supply and demand and may deviate slightly from the net asset value per share.

a)         I, II

b)         III, IV

c)         I, II, Ill

d)         I, II, III, IV

QUESTION3

What is correct about leveraged ETFs?

I.     A leveraged ETF is designed to achieve returns that are multiples of the performance of the underlying index it tracks.

II.   The use of leverage, or borrowed capital, makes the ETF more sensitive to market movements. The fund uses borrowed capital, in addition to investor equity, to provide a higher level of exposure to the underlying index.

III. Typically, a leveraged ETF will use $3 of leverage for every $1 of investor capital.

IV. The goal is to generate a return made with the borrowed capital that exceeds what it costs to acquire the capital itself. For example, a leveraged ETF, based on the S&P 500 Index, might attempt to achieve a daily return that is three times the daily return of the S&P 500.

a)         I, II, III

b)         I, II

c)         I, II, IV

d)         I, II, III, IV

The answers to the questions on ETFs will be posted 1 week from today, Friday July 5

Edit: Answers can now be found here.

Good luck on your studies.

IMT Exam Questions

Questions

 

Chapter 15: Managing Your Client’s Investment Risk

1. Equity monetization is a mechanism offered by banks and their investment dealer subsidiaries that allow individuals to hedge the price exposure of a concentrated position in a publicly listed stock, and raise money against that hedged position cost-effectively. The shares are hedged using an equity monetization structure. These structures could include a (an)?

I. equity forward structure

II. exchangeable debenture structure

III. retractable preferred share structure

IV. equity collar structure

a) I, II, III

b) II, III, IV

c) I, II, IV

d) I, II, III, IV

 

Chapter 15: Managing Your Client’s Investment Risk

2. Suitable candidates for equity monetization include?

I. Corporate insiders, including directors and senior officers of publicly listed corporations, who have been with the company for a long time and have accumulated a significant position in shares or stock options in their company, and who have a substantial concentration risk.

II. Controlling or significant shareholders of publicly listed companies. Controlling or significant shareholders can use equity monetization to diversify their substantial concentration risk on the stock. These shareholders also tend to have a low cost base on their shares, so tax deferral is an important feature along with the ability to vote, which allows them to maintain their influence over the issuer.

III. Owners-managers of private companies that have gone public. These shareholders are usually exposed to concentration risk, and may have a low cost base on their shares, since they received or purchased shares in the company before it went public.

IV. Shareholders involved in mergers and acquisitions based on share exchanges. When a Canadian company is acquired by another publicly listed Canadian company, and the consideration offered is either shares in the acquirer or a combination of cash and shares, the selling shareholders can get a tax rollover when they sell their shares to the acquirer. The selling shareholders do not pay tax on the acquisition date; they pay tax only when they sell the acquirer’s shares.

a) I, II

b) III, IV

c) I, II, III

d) I, II, III, IV

 

Answers

 

1. c) I, II, IV

 

2. d) I, II, III, IV

 

For more Investment Management Techniques questions check out our IMT Quiz Book.

Keep up to date on our courses and products by liking us on Facebook and following our Twitter Feed.

 

 

Investment Management Techniques Exam Prep

Questions

 

Chapter 17: Portfolio Monitoring, and Performance Appraisal

1. The return on a mutual fund is 12%; its beta is 1.4; its standard deviation is 10; and the risk-free rate is 3%. Calculate the Sharpe ratio ?

a)            0.58

b)            10.0

c)            6.42

d)            0.90

 

Chapter 17: Portfolio Monitoring, and Performance Appraisal

2. Distinguish between policy return, allocation return, and selection return.

I. Performance attribution analysis begins with the investment policy statement that guides the management of the portfolio. The first step in attribution analysis is to determine the portfolio’s policy return. A portfolio’s policy return is equal to the return on the portfolio based on the strategic asset allocation decision.

II. The second step in attribution analysis is to measure the return on the portfolio based on the decision to shift the portfolio’s weights from the strategic asset allocation, which is called the portfolio’s allocation return. The decision to deviate a portfolio’s weights from the strategic allocation can be made by the client or it can be left to the discretion of the manager. If it is at the discretion of the portfolio manager, then the allocation return is included in the evaluation of the portfolio manager.

III. The final decision in attribution analysis is to measure the portfolio manager’s ability to select individual securities, which is known as the selection effect.

IV. The selection effect is the difference between the actual portfolio return and the policy return.

a)            I, II

b)            I, II, III

c)            I, II, IV

d)            I, II, III, IV

 

Answers

 

1. d) 0.90

(12 – 3)/ 10  = 0.90

 

2. b) I, II, III

Statement IV is incorrect. The selection effect is the difference between the actual portfolio

return and the allocation return, not the policy return.

 

For more Investment Management Techniques questions check out our IMT Quiz Book.

Keep up to date on our courses and products by liking us on Facebook and following our Twitter Feed.

 

 

Investment Management Techniques

Questions

Chapter 6: Analysis of Equity Securities II: Company Analysis & Valuation

1. Which of the following are risk analysis ratios?

 

I. cash flow to total debt

II. quick ratio

III. debt to equity ratio

IV. interest coverage

V. earnings per share

 

a) I, III, IV

b) I, II, III, IV

c) II, III, V

d) I, II, V

 

Chapter 7: Analysis of Equity Securities III: Technical Analysis

2. This indicator measures momentum on a stock by comparing the relative strength of price gains on a day that a stock closes up, to the strength of price declines on days that a stock closes down. This is the ?

 

a) MACD

b) RSI

c) Stochastic indicator

d) PSR

 

Answers

 

1. a) I, III, IV

2. b) RSI; the relative strength index