Sabrina Young is a fixed- income portfolio manager at Princeton Pension Ltd. She has observed that the market for highly structured mortgages is the concentration of salespeople she meets and that these products represent a significant number of trading opportunities. In discussions about this topic with her team, Young learns that calculating yields on changing cash flows within the deal structure requires very specialized vendor software.
After conducting further research, they find out that each deal is unique and that deals can have more than a dozen layers and changing cash flow priorities. Young arrives at the conclusion that, because of the complexity of these securities, the team cannot effectively distinguish between potentially good and bad investment options. Hence, to avoid misrepresenting their understanding, the team decides that the highly structured mortgage segment of the securitized market should not become part of the core of the fund’s portfolio; they will allow some of the less complex securities to be part of the core.

Based on the above scenario, comment and discuss on Sabrina Young and her team professional conduct and the appropriate actions that she should take by applying the CFA Standards of Practice Handbook.

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