Custom Security-Based Benchmark between, contrast, investment, difference, definition

Wendy01

I'm finding a difference between the CFAI definition and the Schweser definition, this is my understanding:

CFAI:

You have the manager's ENTIRE investment universe, from which the manager can pick investments. The custom benchmark is created from weighting that WHOLE universe in a manner similar to the manager's investment process.

This is in contrast to Schweser:

Construct the benchmark from assets SELECTED FROM the manager's universe and weighted to reflect the manager's allocations (allocations = process?).


Can anyone please help me reconcile the two? It sounds like Schweser only uses SOME of the securities. Thanks!

Iginla2011

The benchmark is more index-like composed of all securities that fit the criteria( which is somehwat broadly defined). This wuld be difficult to invest in because of the large number of trades and administration of the portfolio can be expensive

The manager may make sampling decisions from the universe of securtities fitting the criteria. This would save costs of trading plus he could try and beat the nenchmark at the same time thru better selection among the candidates

bodhisattva

what's the purpose of the custom securty-based benchmark.

does it contain exactley the same wheightings as the manager ?

construction steps are as follows:
1) identify the managers investment process, asset allocation and weighting
2) use the same assets and weightings for the benchmark
3) assess and rebalance the benchmark on a predetermined schedule

if the benchmark is built with the same weightings and assets - how do you see outperformance???

thanks

mp3bu

yellayella Wrote:
-------------------------------------------------------
> what's the purpose of the custom securty-based
> benchmark.
>
> does it contain exactley the same wheightings as
> the manager ?
>
> construction steps are as follows:
> 1) identify the managers investment process, asset
> allocation and weighting
> 2) use the same assets and weightings for the
> benchmark
> 3) assess and rebalance the benchmark on a
> predetermined schedule
>
> if the benchmark is built with the same weightings
> and assets - how do you see outperformance???
>
> thanks


When managers deviate from the said benchmark (between the predetermined rebalancing schedule) as the case with other benchmarks.