Alternative Investments: CFA® Level II

It is 5–10% of the 2027 Level II exam. 29 learning outcomes across 4 learning modules.

60 practice questions and 0 formula cards on this topic in the app.

Introduction to Commodities and Commodity Derivatives

• Contrast the features of the different commodity sectors
• Contrast how commodity sectors move through their life cycle, from production to trading or consumption
• Explain how valuing commodities differs from valuing equities and bonds
• Set out the kinds of participant found in commodity futures markets
• Analyse how spot and futures prices relate when markets are in contango and when they are in backwardation
• Contrast theories explaining commodity futures returns
• Set out, work out and interpret each part of the total return on a fully collateralised commodity futures contract
• Contrast roll return when markets are in contango with roll return when they are in backwardation
• Explain how commodity swaps can be used to gain or adjust exposure to commodities
• Explain how the way a commodity index is built influences its returns

Overview of Types of Real Estate Investment

• Contrast the key features of real estate investments that matter for valuation
• Explain what drives the economic value of real estate investments and the part they play in a portfolio
• Discuss the investment features that set each commercial property type apart
• Explain how due diligence is carried out on real estate investments and the approaches used to value them
• Discuss real estate investment indexes: how they are built and the biases they may contain

Investments in Real Estate through Publicly Traded Securities

• Discuss the kinds of real estate securities that trade publicly
• Argue why NAVPS, the net asset value per share, suits the valuation of listed real estate securities, and use forecast cash net operating income to estimate it
• Explain the role of FFO (funds from operations) and AFFO (adjusted FFO) in valuing REITs
• Value a REIT share by discounted cash flow, by net asset value and by relative value using price-to-FFO and price-to-AFFO multiples, and interpret the results
• Weigh the pros and cons of holding real estate via listed securities rather than private vehicles

Hedge Fund Strategies

• Discuss the ways hedge fund strategies can be grouped
• Discuss equity-related hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio
• Discuss event-driven hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio
• Discuss relative value hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio
• Discuss opportunistic hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio
• Discuss specialist hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio
• Discuss multi-manager hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio
• Explain how factor models can shed light on the risk exposures of hedge funds
• Assess what adding a hedge fund strategy to a traditional portfolio does to that portfolio