Completeness fund approach

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gtamfreak

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Can someone explain me how does completeness fund approach work? How does it minimize differences in risk exposure between portfolio and benchmark? How can it be combined with active portfolios to attain risk exposure that is similar to benchmark?
 
If you google “completeness fund” you’ll find a link to a thread here on AnalystForum from 2009.
I encourage you to ignore it. Most of what’s in there is dead wrong. They’re confusing a completeness fund with a completion portfolio – a very different beast – and it ain’t pretty.
I’ve looked for definitions of a completeness fund and have been stymied: all of the definitions tell you what it’s supposed to do, but not what it is. Unfortunately, I haven’t a copy of the curriculum, so I cannot read that to see if CFA Institute tells you what it is, or merely follows the party line and tells you what it’s supposed to do.
Sorry. I wish I could help more.
 
you have a portfolio of active managers - each of whom has unique exposures or biases - sector overweighting or underweighting etc. which makes this exposure different from the investor’s overall benchmark.
Now when a completeness fund is added to this portfolio of managers - it makes the overall risk exposure equivalent to that of the overall investor’s benchmark. E.g. the completeness fund could make overall sector / style neutral with respect to the benchmark, while still retaining the active manager’s exposures.
Disadvantage: tries to eliminate misfit risk - which would give up some value add thro the portfolio of active managers.
 
cpk123 wrote:you have a portfolio of active managers - each of whom has unique exposures or biases - sector overweighting or underweighting etc. which makes this exposure different from the investor’s overall benchmark.
Now when a completeness fund is added to this portfolio of managers - it makes the overall risk exposure equivalent to that of the overall investor’s benchmark. E.g. the completeness fund could make overall sector / style neutral with respect to the benchmark, while still retaining the active manager’s exposures.
Disadvantage: tries to eliminate misfit risk - which would give up some value add thro the portfolio of active managers.
Click to expand...
That’s the same stuff I read, but that tells what it does, not what it is. One can infer what it must be, but it sure would be nice to see a definition that says what the bloody thing is, instead of merely what it does (or is supposed to do).
Thanks, cpk123!
 
so completeness fund that was added to portfolio sholud be same as investor benchmark right?
 
nworst wrote:so completeness fund that was added to portfolio sholud be same as investor benchmark right?
Click to expand...
No, it should make the overall risk exposure the same; the portfolio may (in fact, should) differ from the benchmark.
 
The core-satellite approach seems like allocating funds among active managers. The completeness fund seems like what an active manager would do to minimize misfit risk. The alpha-beta approach seemed like what an active manager would do in a (specifically) highly efficient mkt.
Are these all semi-active strategies?
 
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