Which of the following risk types does the asset manager need to consider when evaluating her diversified equity portfolio?

An endowment asset manager with a focus on long/short equity strategies is evaluating the risks of an equity portfolio.

Which of the following risk types does the asset manager need to consider when evaluating her diversified equity portfolio?

I. Company-specific projected earnings and earnings risk

II. Aggregate earnings expectations

III. Market liquidity

IV. Individual asset volatility
A . I
B . I, IV
C . II, III
D . I, II, IV

View Answer

Answer: D

Explanation:

When evaluating a diversified equity portfolio, an endowment asset manager should consider:

Company-specific projected earnings and earnings risk to understand the performance potential and variability of individual assets.

Aggregate earnings expectations to gauge the overall market outlook and economic conditions affecting the portfolio.

Individual asset volatility to assess the risk and potential fluctuations in the value of specific investments within the portfolio.

Market liquidity, while important, is not typically a primary concern for long/short equity strategies focused on diversified portfolios.