Consider the following information regarding the performance of a money manager

Question

Consider the following information regarding the performance of a money manager in a recent month. The table presents the actual return of each sector of the manager’s portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column (4).

Index Return Actual Benchmark Equity BondS Cash Return Weight Weight 0.60 0.20 0.20 Actual 2.4% 1.1 0.40 0.40 0.20 3.1% (S&P; 500) 2.0 (Aggregate Bond index) 1.1 a-1. What was the manager's return in the month? (Do not round intermediate calculations Enter your answer as a percentage rounded to 2 decimal places.) Manager's return a-2. What was her over- or under-performance? (Enter a positive value for over-performance or a negative value (using a minus sign) for under-performance. Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Over-or underperformance

Explanation / Answer

Actual Return R Actual weight A Benchmark weight B Index return I actual R*A Bogey B*I Equity 2.40% 0.6 0.4 3.10% 0.0144 0.0124 Bonds 1.40% 0.2 0.4 2% 0.0028 0.008 Cash 1.10% 0.2 0.2 1.10% 0.0022 0.0022 Total 0.0194 0.0226 % 1.94 2.26 ans a Manager return 1.94 % ANS a-2 Underperformace=2.26-1.94 0.32 % b) Actual Return R Index return I excess perform ance E Actual weight A Contribution A*E Equity 2.40% 3.10% -0.70% 0.6 -0.0042 Bonds 1.40% 2% -0.60% 0.2 -0.0012 Cash 1.10% 1.10% 0.00% 0.2 0 Total -0.0054 -0.54 % Contribution of security selection -0.54 % ANS C 3 4 3*4 Actual weight A Benchmark weight B Excess weight Index return I Contribution Equity 0.6 0.4 0.2 3.10% 0.0062 Bonds 0.2 0.4 -0.2 2% -0.004 Cash 0.2 0.2 0 1.10% 0 Total 0.0022 0.22 Contributionto Asset 0.22 %

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