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).

What was the manager’s return in the month? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What was her over or underperformance? (Input the value as positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.)

What was the contribution of security selection to relative performance? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

What was the contribution of asset allocation to relative performance? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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).

Explanation / Answer

a1. Manager's return in the weighted average of the return of all securities of the portfolio.

Manager's Return: (3.2 x 0.60) + (2.4 x 0.20) + (1.8 x 0.20) = 2.76%

a2. Calculation of weighted average return of Index:

(3.8 x 0.60) + (2.7 x 0.20) + (1.8 x 0.20) = 3.18%

Manager is underperforming because his portfolio return in lower than the index return.

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