Avi Abram, CFA, was recently appointed to manage the Nupit University Endowment fund. Over the past few years, Nupit's endowment has grown dramatically as a result of fundraising efforts by Nupit's board and by the University's current president, Bel Needham. The endowment's trustees have communicated to Abram the need to diversify the current portfolio from mostly fixed income investments. Abram wants to increase the fund's allocation to equities as well as alternative investments. As part of the due diligence for the reallocation, Abram meets with several fund managers that focus on alternative investments. One of the portfolio managers, Michelle Navarro, manages a commodities fund, the Navarro Prime fund. During a presentation, Navarro indicates that the fund seeks to profit from simultaneous trades executed in commodity spot and futures markets. Navarro indicates that the fund has executed flexible (as- needed) commodity storage agreements with several providers to facilitate these strategies.

One of the slides used by Navarro during her presentation shows the current futures prices for some of the trades that the fund has made in the past, as shown in Exhibit 1: Market Prices on December 1, 2019.

CONTRACT

CRUDE WTI

U.S CORN

PALLADIUM

Jul-11

52,33

322,30

1 298,00

Sep-11

56,73

320,93

1 276,00

Dec-11

59,11

318,11

1 222,00

Navarro mentions that the factors affecting the supply and demand (and therefore the price) of various commodities are different. While discussing crude oil contracts, Navarro states that "over the past year, oil prices have experienced high volatility. This may be why we have seen a large proportion of trades by the airline industry".

Abram is also interested in real estate investments. Deepak is a Level II CFA candidate who was recently hired at the fund. Deepak makes the following statements:

Statement 1: Hotel REITs typically manage several properties and have centralized reservations systems to capture economies of scale not possible for single property owners. A key metric used by analysts is RevPAR.

Statement 2: Properties owned by storage REITs rent mini warehouses on a monthly basis and under a net lease.

The Gould Organization is considering the use of an index as a benchmark for measuring the performance of the firm's private real estate investments.

Jim Henry, principal with Axis Investment Consultants, Inc. ("Axis"), is preparing to give a presentation to Steve Salter, CFO of Aria Insurance, Inc. ("Aria"). Henry has been trying to land the Aria account for a long time. During their previous meeting, Salter had mentioned that Aria wants to increase its portfolio allocation to alternative investments, specifically REOCs and REITs, hedge funds, private equity funds, and commodities.

QUESTION 7

The Navarro Prime fund is most likely taking the role of:

A)a speculator.

B)an arbitrageur.

C)a hedger.

Select the appropriate option and support answer both by referring to the vignette and from a theoretical perspective(6 marks)

QUESTION 8

Considering the various commodity types, the supply of which one will be least affected by extreme weather?

Provide your answer with a supportive argument(4 marks) QUESTION 9

Based on Exhibit 1: Market Prices on December 1, 2019, which of the commodities making up the fund will experience a negative roll return?

a)Provide justification for your choice theoretically and by making reference to the vignette(6 marks)

b)and also explain why the other alternatives do not exhibit negative roll return.

(8 marks)

QUESTION 10

Are Deepak's both statements correct?

Provide detailed explanation for your answer(12 marks)

QUESTION 11

Compared to a transaction-based real estate index, an appraisal-based real estate index is most likely to have higher:

A)lag.

B)volatility.

C)correlation with other asset classes.

Select the appropriate choice and justify your answer and describe why the other options are not applicable.

(8 marks)

QUESTION 12

Compared to private investment in real estate, REITs are least likely to provide greater:

A)diversification by property type.

B)access to premium properties.

C)tax advantages.

Select the appropriate answer