The CFA Level 1 Portfolio Management section is relatively small compared to the other ones on the exam. You can check the CFA Institute’s website for yourself, but you’ll find that it’s only 7% (as of this writing) of the exam. As such a small part of the exam, is it even with putting in the time?
CFA Level 1 Portfolio Management: Why It Matters
You’re right to think that the CFA Level 1 Portfolio Management section isn’t typically a make or break. That said, the content sets the foundation for what you will eventually learn in CFA Level 2 and 3. In the third and final exam specifically, the Portfolio Management section can make up over 50% of the tested material.
For anyone that has been through plenty of college exams, you’ll know that the earlier you start learning the better. Whether you get to the CFA Level 3 a year and a half after the CFA Level 1 exam, or if it takes years later, it’s better to review material that you’re familiar with than material you haven’t even glanced at. Furthermore, the CFA Level 1 Portfolio Management section is less mentally taxing than some of the other sections. So, it’s worth a glance! The Derivatives and Fixed Income sections, for example, tend to be much more troublesome for the students that I tutor.
Of course, for the CFA Level 1 exam, the FR&A section is a much higher weighting and more important for passing. If you had to choose between the two, FR&A is where your focus should be. But, if you find yourself crunched for time, there are some key areas on which you should focus for the CFA Level 1 Portfolio Management section.
Where Should I Focus?
Since the CFA exam curriculum is always changing, it’s hard to know for sure where to put your focus for an exam you expect to take in a couple years time. Nevertheless, look for key topics (e.g., staples) that are likely to remain in focus from year to year. Here are a few:
- Portfolio Risk and Return
- Capital Allocation Line
- Capital Market Line
- Security Market Line
- Related Ratios/Risk Measures: Sharpe Ratio, Treynor Ratio, Jensen’s Alpha, M2, etc.
- Investment Policy Statement (IPS) Content
You can be sure that you will see most, if not all, of the above CFA Level 1 Portfolio Management content on future exams (CFA Level 2 and/or 3). These topics are foundational when it comes to Portfolio Management theory. Whether Warren Buffett approves of any of it is another story (and highly doubtful), but you certainly need to know it to pass later exams.
In other words, if you plan to take every level of the CFA, then put some time into the CFA Level 1 Portfolio Management section. If you don’t have time to read the whole section just try some CFA Level 1 practice questions in Portfolio Management. Ultimately, some focus on this all-important section will provide you with a nice head start for later levels.