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 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.

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.)

Actual Return Actual Weight Benchmark Weight Index Return Equity 2.1 % 0.5 0.6 2.6% (S&P 500) Bonds 1.9 0.1 0.3 2.3 (Barclay’s Aggregate) Cash 0.6 0.4 0.1 0.7

Explanation / Answer

Actual Return = (0.5 * 2.1%) + (0.1 * 1.9%) + (0.4 * 0.6%)

Actual Return = 1.48%

Index Return = (0.6 * 2.6%) + (0.3 * 2.3%) + (0.1 * 0.7%)

Index Return = 2.32%

Underperformance = 1.48% - 2.32%

Underperformance = -0.84%

Part B

Contribution of Security Selection = -0.250% - 0.040% - 0.040%

Contribution of Security Selection = -0.330%

Market Portfolio Performance Index Performace Excess Performance Manager Portfolio Weight Contribution Equity 2.1% 2.6% -0.5% 0.5 -0.250% Bond 1.9% 2.3% -0.4% 0.1 -0.040% Cash 0.6% 0.7% -0.1% 0.4 -0.040%

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