LOS n: Evaluate the relative merits of high/low, interquartile range, and standard deviation as measures of the dispersion of portfolio returns within a composite.

Q1. A composite contains portfolios A, B, C and D that had returns during the year of 3.8 percent, -4.6 percent, 16.1 percent and 7.4 percent respectively. Which of the following statements best describes the provisions of GIPS with respect to measures of dispersion?

A)   The standard deviation is the most appropriate measure, but the firm should disclose whether the denominator in the calculation is the number of portfolios or the number of portfolios minus one.

B)   The standard deviation should be shown using either equal weightings or asset weightings.

C)   No measure of dispersion needs to be presented.

Q2. Which of the following measures of portfolio dispersion is least likely to reflect an outlying portfolio?

A)   Interquartile range.

B)   Mean absolute deviation.

C)   Standard deviation.

Q3. Maximum Investment Management, in existence since 1989, has created the performance presentation shown below. Maximum believes that this presentation complies with the Global Investment Performance Standards (GIPS).

Which of the following is NOT an error or omission in Maximum’s presentation that render it noncompliant with GIPS? GIPS requires:

A)   firms to report a 5-year compliant history, or since firm inception if the firm is less than 5 years old.

B)   that a firm state how it defines itself when it presents investment performance in compliance with the Standards.

C)   firms to present a benchmark return or explain why a benchmark is not appropriate.