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.

What was the contribution of security selection to relative performance? (Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.)

Actual Return Actual Weight Benchmark Weight Index Return Equity 2.6 % 0.4 0.6 3.1% (S&P 500) Bonds 1.5 0.2 0.1 1.7 (Barclay’s Aggregate) Cash 0.7 0.4 0.3 0.8

Explanation / Answer

(b) What was the contribution of security selection to relative performance (1) (2) (3) = (1) -(2) (4) (5) =(3) *(4) Market Portfolio performance index performance Excess performance managers portfolio Weights Contribution Equity 2.60% 3.10% -0.50% 0.4 -0.20% Bonds 1.50% 1.70% -0.20% 0.2 -0.04% cash 0.70% 0.80% -0.10% 0.4 -0.04% Contribution of Security Selection -0.28%

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