Dear CFA® Program Level I Candidate, Once again, Team EduPristine would like to thank all of you who are following this series. The Commandments and Sins of CFA® Program Level I is a huge success because of you!

Last week we have covered Quantitative Methods which is a friend to some and a foe to most others!

In this session, we will cover the important points of a topic which most people find most easy in the CFA® Program Level I exam Alternative Investments. This topic covers a very small weight of just 3%. However, this topic is considered Comfort Food to most candidates.

Lets take a look at the Commandments and Sins of Alternative Investments!

  1. NEVER consider depreciation and financing costs for calculating the NOI. Also, the only taxes relevant for this calculation are property taxes (not the investor’s tax).
  2. Between MFs and ETFs, ETFs are clearly the best (due to in-kind creation and redemption). Hence, don’t waste too much time studying the disadvantages of ETFs.
  3. Be sure to remember the advantages and disadvantages of High Watermark Provision and Fund of Funds. They are highly testable.
  4. The Hedge Fund Return Reporting Biases are very important. Understand the biases through diagrams (stick figures for fund managers, squares for funds, and graph depicting fund performances).
  5. Remember the three components of Total Return on a Commodities Investment = Collateral Yield +Price Return + Roll Yield
  6. Unlike Equity Funds, a Commodity Index Strategy is NOT a passive strategy. The index comprises of not just Commodities but their Futures and Collateral. It is active because you need to roll over futures positions and reinvest in T.Bills (collateral) that have matured.

We hope that the above points were useful for your preparation. We will send you such useful information before the exam. If you want to know about a particular topic please write to us at care@edupristine.com.