You are asked to analyze the performance of a portfolio manager whose portfolio
ID: 2750954 • Letter: Y
Question
You are asked to analyze the performance of a portfolio manager whose portfolio each year consist of stocks and bonds selected by the manager. A twenty-year record of the manager's returns and her allocations to stocks and bonds is provided below. Also shown are returns on passive stock and bond indexes. Using the information provided, evaluate the manager's overall performance as compared to a "normal" or "policy" portfolio, and give the amounts of this overall performance attributable to asset allocation and security selection. Explain clearly how you compute your answers.Explanation / Answer
From the beow it is clear that the portfolio manager has managed to beat the stock and bond return oof the index consistently over the the twenty year period that have been considered.
Only in the year two we can she that the porfolio manager was unable to beat the passive index by a small margin with respect to the stocks. The passive index gave a -1.2% returns on stocks whereas manager's portfolio gave a return of -2%. This is only a small divistaion when compared to the overall performance.
This outperformace is more beacuse of her asset allocation. We can see that in the year of recession (year 2) the manager increased the allocation of bonds and reduce d equoty. So this is more likely to have outperformed the asset allocation rather than the porfolio selection.
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