{"id":34168,"date":"2023-11-02T18:30:55","date_gmt":"2023-11-02T18:30:55","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=34168"},"modified":"2026-01-24T14:22:49","modified_gmt":"2026-01-24T14:22:49","slug":"top-down-strategies","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/","title":{"rendered":"Top-down Strategies"},"content":{"rendered":"<p><script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Smart beta can most appropriately be thought of as an extension of which model?\",\n    \"text\": \"Smart beta can most appropriately be thought of as an extension of?\\n\\nA. The Black-Scholes Merton Model.\\n\\nB. The original CAPM Model.\\n\\nC. The H-model.\",\n    \"answerCount\": 3,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The original CAPM Model.\",\n      \"explanation\": \"Smart beta extends the intuition of the CAPM by going beyond market beta as the sole driver of returns. Instead of relying only on beta, smart beta strategies incorporate additional systematic factors such as value, size, momentum, or quality. The Black\u2013Scholes\u2013Merton model is used for option pricing, and the H-model is applied to equity valuation with changing growth rates, making them inappropriate frameworks for smart beta.\"\n    }\n  }\n}\n<\/script><\/p>\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/HSen3JaHKwE\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Instead of picking individual stocks, top-down managers use broad market ETFs and contracts linked to financial instruments to adjust their portfolios. They put more money in markets they expect to do well and less in those expected to perform poorly.<br \/>\nHere are some ways top-down managers categorize markets:<\/p>\n<ul>\n<li>Country\/geography. <\/li>\n<li>Industry\/sector. <\/li>\n<li>Volatility (by way of derivatives). <\/li>\n<li>Thematic investment strategies (blockchain, clean energy, etc.). <\/li>\n<\/ul>\n<p>Top-down country\/geography allocation can be combined with insights from a fundamental bottom-up approach, which values a market based on aggregating individual companies.<\/p>\n<p>Structured products and ETFs have made it easier for managers to implement passive factor investing (also known as smart beta). This allows targeting specific styles or sectors when they are expected to outperform without replicating an entire index.<\/p>\n<h2>Smart Beta <\/h2>\n<p>At first, the CAPM theory said investors who take on market risk (beta) should earn a return based on that risk. Later, the CAPM model added more factors, such as size and value.<\/p>\n<p>Smart beta is like a further step from those ideas. If certain factors can predict returns well, managers add them to their strategies.<\/p>\n<p>So, smart beta is a type of top-down analysis. It looks at basic factors that drive returns, unlike bottom-up analysis, which focuses on finding individual stocks that are priced incorrectly.<\/p>\n<blockquote>\n<h2>Question<\/h2>\n<p>Smart beta can <em>most appropriately<\/em> be thought of as an extension of?<\/p>\n<ol type=\"A\">\n<li>The Black-Scholes Merton Model.<\/li>\n<li>The original CAPM Model.<\/li>\n<li>The H-model.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p><strong>The correct answer is B:<\/strong><\/p>\n<p>Smart beta is similar to the idea of a CAPM model. However, instead of using Beta as the sole factor driving equity returns for the individual security, other factors are added. <\/p>\n<p><strong>A is incorrect.<\/strong> The BSM Model is used for options pricing and is not a relevant starting point for discovering individual equity investment factors.<\/p>\n<p><strong>C is incorrect.<\/strong> The H-model is used to value equities with alternating super growth and normal growth periods.<\/p>\n<\/blockquote>\n<p>Reading 25: Active Equity Investing: Strategies<\/p>\n<p>Los 25 (c) Analyze top-down active strategies, including their rationale and associated processes<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Instead of picking individual stocks, top-down managers use broad market ETFs and contracts linked to financial instruments to adjust their portfolios. They put more money in markets they expect to do well and less in those expected to perform poorly&#8230;.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[571],"tags":[],"class_list":["post-34168","post","type-post","status-publish","format-standard","hentry","category-cfa-level-iii","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Top-Down Investment Strategies | CFA Level III<\/title>\n<meta name=\"description\" content=\"Learn how top-down strategies guide asset allocation using macro views, market ETFs, and derivatives to position portfolios across asset classes.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Top-Down Investment Strategies | CFA Level III\" \/>\n<meta property=\"og:description\" content=\"Learn how top-down strategies guide asset allocation using macro views, market ETFs, and derivatives to position portfolios across asset classes.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/\" \/>\n<meta property=\"og:site_name\" content=\"CFA, FRM, and Actuarial Exams Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2023-11-02T18:30:55+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-01-24T14:22:49+00:00\" \/>\n<meta name=\"author\" content=\"Nicolas Joyce\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Nicolas Joyce\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/\"},\"author\":{\"name\":\"Nicolas Joyce\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f\"},\"headline\":\"Top-down Strategies\",\"datePublished\":\"2023-11-02T18:30:55+00:00\",\"dateModified\":\"2026-01-24T14:22:49+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/\"},\"wordCount\":334,\"articleSection\":[\"Level III of the CFA\u00ae Program\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/\",\"url\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/\",\"name\":\"Top-Down Investment Strategies | CFA Level III\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/#website\"},\"datePublished\":\"2023-11-02T18:30:55+00:00\",\"dateModified\":\"2026-01-24T14:22:49+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f\"},\"description\":\"Learn how top-down strategies guide asset allocation using macro views, market ETFs, and derivatives to position portfolios across asset classes.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/study-notes\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Top-down Strategies\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#website\",\"url\":\"https:\/\/analystprep.com\/study-notes\/\",\"name\":\"CFA, FRM, and Actuarial Exams Study Notes\",\"description\":\"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/study-notes\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f\",\"name\":\"Nicolas Joyce\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g\",\"caption\":\"Nicolas Joyce\"},\"url\":\"https:\/\/analystprep.com\/study-notes\/author\/kajal\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/HSen3JaHKwE\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"2265\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2023-11-02T18:30:55+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Top-Down Investment Strategies | CFA Level III","description":"Learn how top-down strategies guide asset allocation using macro views, market ETFs, and derivatives to position portfolios across asset classes.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/","og_locale":"en_US","og_type":"article","og_title":"Top-Down Investment Strategies | CFA Level III","og_description":"Learn how top-down strategies guide asset allocation using macro views, market ETFs, and derivatives to position portfolios across asset classes.","og_url":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/","og_site_name":"CFA, FRM, and Actuarial Exams Study Notes","article_published_time":"2023-11-02T18:30:55+00:00","article_modified_time":"2026-01-24T14:22:49+00:00","author":"Nicolas Joyce","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Nicolas Joyce","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/"},"author":{"name":"Nicolas Joyce","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f"},"headline":"Top-down Strategies","datePublished":"2023-11-02T18:30:55+00:00","dateModified":"2026-01-24T14:22:49+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/"},"wordCount":334,"articleSection":["Level III of the CFA\u00ae Program"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/","url":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/","name":"Top-Down Investment Strategies | CFA Level III","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/#website"},"datePublished":"2023-11-02T18:30:55+00:00","dateModified":"2026-01-24T14:22:49+00:00","author":{"@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f"},"description":"Learn how top-down strategies guide asset allocation using macro views, market ETFs, and derivatives to position portfolios across asset classes.","breadcrumb":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/top-down-strategies\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/study-notes\/"},{"@type":"ListItem","position":2,"name":"Top-down Strategies"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/study-notes\/#website","url":"https:\/\/analystprep.com\/study-notes\/","name":"CFA, FRM, and Actuarial Exams Study Notes","description":"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/study-notes\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f","name":"Nicolas Joyce","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g","caption":"Nicolas Joyce"},"url":"https:\/\/analystprep.com\/study-notes\/author\/kajal\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/HSen3JaHKwE","og_video_type":"text\/html","og_video_duration":"2265","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2023-11-02T18:30:55+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/34168","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/comments?post=34168"}],"version-history":[{"count":4,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/34168\/revisions"}],"predecessor-version":[{"id":42203,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/34168\/revisions\/42203"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/media?parent=34168"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/categories?post=34168"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/tags?post=34168"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}