Q 1. 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 1 and the returns of sector indices in column 4.
|
|
Actual Return
|
Actual Weight
|
Benchmark Weight
|
Index Return
|
|
Equity
|
2%
|
.70
|
.60
|
2.5% (S&P 500)
|
|
Bonds
|
1
|
.20
|
.30
|
1.2 (Salomon Index)
|
|
Cash
|
0.5
|
.10
|
.10
|
0.5
|
a. What was the manager's return in the month? What was her overperformance or underperformance?
b. What was the contribution of security selection to relative performance?
c. What was the contribution of asset allocation to relative performance? Confirm that the sum of selection and allocation contributions equals her total "excess" return relative to the bogey.
Q 2. A global equity manager is assigned to select stocks from a universe of large stocks through, out the world. The manager will be evaluated by comparing her returns to the return on the MSC! World Market Portfolio, but she is free to hold stocks from various countries in whatever proportions she finds desirable. Results for a given month are contained in the following table
|
Country
|
Weight In
MSCI Index
|
Manager's
Weight
|
Managers Return
in Country
|
Return of Stock Index
for That Country
|
|
U.K.
|
.15
|
.30
|
20%
|
12%
|
|
Japan
|
.30
|
.10
|
15
|
15
|
|
U.S.
|
.45
|
.40
|
10
|
14
|
|
Germany
|
.10
|
.20
|
5
|
12
|
a. Calculate the total value added of all the manager's decisions this period.
b. Calculate the value added (or subtracted) by her country allocation decisions.
c. Calculate the value added from her stock selection ability within countries. Confirm th sum of the contributions to value added from her country allocation plus security self decisions equals total over- or underperformance.