Reading 43: Evaluating Portfol....rmance－LOS n between, interest, management

tycoon

CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 16: Performance Evaluation and Attribution
Reading 43: Evaluating Portfolio Performance
LOS n: Differentiate between the effect of the interest rate environment and the effect of active management on fixed-income portfolio returns.

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The following are a number of contributions to return for a fixed-income portfolio:

1. Return on interest rate management
2. Return on trading activity
3. Return due to changes in forward rates
4. Return on the default-free benchmark

Which of the above statements are TRUE?

Effect of External Interest Environment

Contribution of the Management Process

A) 1, 2, 3 4

B) 3 1, 2, 4

C) 3, 4 1, 2

D) 1, 3 2, 4

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Answer and Explanation

Changes in forward rates and the return on the default free benchmark are outside of the managers influence and are therefore part of the external interest environment. Interest rate management and trading activity are an integral part of the role of the manager and are therefore part of the management process. Remember we could also include return from sector/quality management and return from the selection of specific securities.
  

[此贴子已经被作者于2008-9-17 17:31:03编辑过]

tycoon

Which of the following would be least appropriate for characterizing a fixed income managers active management skill? The return due to:

A) the convexity of the portfolio.

B) the duration of the portfolio.

C) changes in the shape of the yield curve.

D) implied forward rates.

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Answer and Explanation

The return due to implied forward rates is used to determine the expected return from the external interest rate environment. The other responses are used to evaluate the contribution of the management process.