Style fit/weight question from Schweser Mock question, manager, active, periods

ASSet_MANagemen

R Sqare = 93% for 4 year period

Weights
Index 2006 2007 2008 2009
LCV 1 1 1 0
LCG 0 1 1 0
SCV 2 1 0 1
SCG 97 97 98 99
Total 100 100 100 100

which one is least accurate?

A) manager is using active SCG strategy
B) manager is using passive SCG strategy
C) manager has experienced insignificant style drift over four periods in the study.

Schweser says answers is A but if R sqaure is 93% why not a B

Colum

My take based on answer is SCG Startegy ( as asked in question ) is passive but overall startegy based on R square is active. Does that make sense guys?

Analti_Calte

I put B. I think Schweser is wrong on this one. How can a passive small cap growth manager have 2% of assets in large cap stocks?



Edited 1 time(s). Last edit at Sunday, May 23, 2010 at 03:53PM by kaklan.

NakedPuts2011

Cannot find a hard and fast, but there is one example with passive fund with style fit 99.5%, so around <1%?

jmh530

kaklan Wrote:
-------------------------------------------------------
> I put B. I think Schweser is wrong on this one.
> How can a passive small cap growth manager have 2%
> of assets in large cap stocks?

2% is not a big deal. Some of the small cap growth may have been reclassified by the benchmark providers as big cap in the mean time. Happens all the time.

ll11

kaklan Wrote:

> If they have been reclassified, a passive strategy
> would have to sell. In both 2007 and 2008, they
> show 2% in large cap. A small cap passive
> strategy would be holding hundreds if not
> thousands of stocks. 2% is a large number of
> holdings.

Notice that in addition that it is a statistically driven analysis, not a holding base analysis (i.e, categorizing each of the stock in the holding to see where it belongs), so it is nigh impossible to get "clean" 100% weighting because the indices are not 100% independent, so if it says 2%, it does not necessarily mean 2% of the holdings is large cap. It says 2% of the explainable return is driven by large cap index return.

The real % holding of large cap is likely to be smaller than that.

Zestt

I got this one incorrect too. I thought 7% was good enough to be called an ACTIVE strategy.


Your answer: A was incorrect. The correct answer was C) The high style fit (93%) indicates that Gamma Managers should increase the amount of active management in the future.

Again, the high style fit probably indicates a passive strategy which does not follow GM’s mandate to actively manage the small-cap growth portion of the plan’s equities. To follow its mandate of active management, GM would need to increase the amount of active management resulting in a smaller style fit (R2)