value: 2.00 points Consider the following information regarding the performance
ID: 2793154 • Letter: V
Question
value: 2.00 points 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) Actual Actual Benchmark Return WeightWeight 2 0% Index Retum 0.70 0.20 0.10 060 0.30 0.10 25% (S&P; 500) 1.2 (Aggregate Bond Index) 0.5 Equity Bonds 0.5 Cash a-1. What was the manager's return in the month? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Managers 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) b. What was the contribution of security selection to relative perfomance? (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 allocationExplanation / Answer
a1.) Manager 's Return = 0.70x2.0 + 0.20x1.0 + 0.10x0.50
= 1.40 + 0.20 + 0.05
= 1.65%
a2.) Benchmark Return = 0.60x2.50 + 0.30x1.20 + 0.10x0.50
= 1.50 + 0.36 + 0.05
= 1.91%
Since, benchmark returns are higher, the manager has underperformed by 1.91-1.65 =0.26%
b.) Contribution of Security Selection = Difference of Returns x Weight of Managed Portfolio
= (2.00 - 2.50)x0.70 + (1.00 -1.20)x0.20 + (0.50-0.50)x0.10
= -0.35 - 0.04 + 0.00
= -0.39%
c.) Contribution of Asset Allocation = Difference of Weights x Difference of Asset Class Returns from Benchmark
= (0.70 - 0.60)x(2.50-1.91) + (0.20 -0.30)x(1.20-1.91) + (0.10-0.10)x(0.50-1.91)
= 0.059 + 0.071
= 0.13%
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