Consider the following information regarding the performance of a money manager
ID: 2793797 • Letter: C
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).
a-1. What was the manager’s return in the month? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Manager’s return %
a-2. What was her over or underperformance? (Input the value as positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.)
(Click to select)UnderperformanceOverperformance %
b. 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.)
Contribution of security selection %
c. What was the contribution of asset allocation to relative performance? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Contribution of asset allocation %
(1)Actual
Return (2)
Actual
Weight (3)
Benchmark
Weight (4)
Index
Return Equity 3.2% 0.60 0.40 3.8% (S&P 500) Bonds 2.4 0.20 0.40 2.7 (Aggregate Bond Index) Cash 1.8 0.20 0.20 1.8
Explanation / Answer
a)
Actual returns = 0.6*3.2% + 0.2*2.4% + 0.2*1.8% = 2.76%
Benchmark returns = 0.4*3.8% + 0.4*2.7% + 0.2*1.8% = 2.96%
Actual returns - Benchmark returns = 2.76% - 2.96% = -0.2% (under perform)
b)
security selection = (0.6 - 0.4)*3.8% + (0.2 - 0.4)*2.7% + (0.2 - 0.2)*1.8% = 0.22%
c)
Asset allocation = 0.6*(3.2%-3.8%) + 0.2*(2.4%-2.7%) + 0.2*(1.8%-1.8%) = -0.42%
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