Schweser's take on benchmarks - WTF??? *** SPOILER ****

joemoran

**** SPOILER (Exam 3 PM) ****
… the benchmark has the following characteristics:
-it uses the top 10% of US portfolio managers each year in each asset class as the benchmark for TopTech managers
-TopTech is very careful to make sure that its managers are familiar with the securities in each benchmark asset class
-The identities and weights of various securities in the TopTech benchmark are clearly defined
Question 10.4: The TopTech benchmark contains all the following properties of a valid benchmark except:
A it is investable
B it is unambiguous
C it is reflective of current investment opinions
–
I was really puzzled because this resembles the “median manager” approach so much, which is neither unambiguous nor investable. Schweser says that this benchmark is unambiguous because “the weights and securities are defined”.
Then, however, they say that the benchmark is not investable, because one cannot know before the fact, what securities the best 10% managers used, and in what proportion.
Isn’t that the EXACT OPPOSITE of what is said in the previous sentence??
Does anybody here understand Schweser’s weird logic??

Wendy01

terrible worded question from schweser…..however, I see what they are trying to get at…the 10% PM are selected at 12/31/10…..to compare everyone’s performance during 2010….
so thus it is uninvestable…..however, if you know the the securities and weights and blah blah after the PM have been chosen…..then technically I guess it is not unambiguous or reflective of current investment opinions…
don’t worry about it……you know the concept…it is just a dumb schweser question..CFAI wouldn’t test you this way.

canadiananalyst

Thanks Blue Collar!
Come to think of it, perhaps “unambiguous” could mean either before or after the fact.
If they had asked for “specified in advance” instead of “unambiguous” then it would have been clearly not the case.
I’m also pretty sure that CFAI would not ask such a question, or at least formulate it in a way that is clearer.