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.
Enter your answer as a percentage rounded to 2 decimal places.)

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.)

What was the contribution of security selection to relative performance? Here "security selection" includes security selection from both equity and bond. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.)

What was the contribution of asset allocation to relative performance? (Do not round intermediate calculations. Enter your answer as a percentage rounded 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 return is calculated as 3.2*0.8+2.8*0.1 +2.0*0.1 = 3.04%

A2. Return of the Index is 4*0.5 + 2.9*0.4 + 2*0.1 =5.5%.

                Hence the Manager underperformed the index by a margin of 5.5-3.05 =2.46%

B. Contribution of security selection is {0.8*(3.2-4) +0.1*(2.8-2.9)+ 0.1*(2.8-2.8)} = -0.65%(negative)

C.Contribution of asset allocation to relative performance is 4.0*(0.8-0.5) +2.9*(0.1-0.4) * 2(0.1-0.1) = 0.33%

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