Problem 24-11 Consider the following information regarding the performance of a

Question

Problem 24-11 Consider the following information regarding the performance of a money manager in a recent month. The table represents 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 indices in column 4. Equity Bonds Cash Actual Return Actual Weight 2.1% 0.5 0.2 0.7 0.3 Benchmark Weight 0.6 0.3 e.1 Index Return 2.6% (S&P; 500) 1.2 (Barclay's Aggregate) 0.8 a-1. What was the manager's return in the month? (Do not round intermediate calculations. Input all amounts as positive values. Round your answer to 2 decimal places.) The manager's return in the month is a-2. What was her overperformance or underperformance? (Do not round intermediate calculations. Input all amounts as positive values. Round your answer to 2 decimal places.)

Explanation / Answer

Ans. 1 Bogey: (0.6 * 2.6%) + (0.3 * 1.2) + (0.1 * 0.8) 1.56 + 0.36 + 0.08 = 2 Actual: (0.5 * 2.1) + (0.2 * 1) + (0.3 * 0.7) 1.05 + 0.2 + 0.21    = 1.46 Ans. 2 Underperformance (2 - 1.46)    =   0.54% Ans. 3 Contribution of security selection: Differntial return Manager's portfolio Contribution to Market (actual return - index return) weight performance Equity -0.5 0.5 -0.25 Bonds -0.2 0.2 -0.04 Cash -0.1 0.3 -0.03 Contribution of security selection -0.32 Ans. 4 Excess Weight Index Contribution Market (actual weight-benchmark weight) Return to performance Equity -0.1 2.6 -0.26 Bonds -0.1 1.2 -0.12 Cash 0.2 0.8 0.16 Contribution of asset allocation -0.22 Security selection -0.32 Add: Asset allocation -0.22 Excess performance -0.54

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