You and a prospective client are considering the measurement of investment perfo
ID: 2777222 • Letter: Y
Question
You and a prospective client are considering the measurement of investment performance, particularly with respect to international portfolios for the past 5 years. The data you discussed are presented in the following table:
International Manager or Index
-6.0%
a. Assume that the data for manager A and manager B accruately reflect their investment skills and that both managers actively manage currency exposure. Briefly describe one strength and one weakness for each manager.
b. Recommend and justify a strategy that would enable your fund to take advantage of the strengths of each of the two managers while minimizing their weaknesses.
International Manager or Index
Total return Country and security return Currency Return Manager A-6.0%
2.0% -8.0% Manager B -2.0 -1.0 -1.0 International Index -5.0 0.2 -5.2Explanation / Answer
Answer:
a.
Manager A:
Strength: Manager A’s total return is somewhat lower than International return (-6% vs -5%), But security return is well above the international standards (2% vs 0.2%). This shows he has good expertise in security management.
Weakness: Manager A has less expertise in currency management as it can be seen in the currency return data, the returns are lower than the international standards. (-8% vs -5.2%).
Manager B:
Strength: the major strength of manager B is the way he/she is managing currency portfolio. The returns on currency are well above international standards (-1% vs -5.2%). Also his overall returns are in good shape as compared to international index.
Weakness: This manager lack security selection ability and this is his major weakness, that is seen in the returns he managed to get on security that are less than international index (-1% vs 0.2%).
b .
The strategy is to give currency management to Manager B and security management to manager A.
And then use their strength to gain more on overall security returns by using the advantage of good security pickup from international markets and properly hedging any currency risk associated with the investments made overseas.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.