Reading 47: Evaluating Portfolio Performance Los l(part1)~Q13

excess, return, manager

Q13. Value added return is defined as the:

A) fund return minus the risk-free rate of return.

B) portfolio return minus the benchmark return.

C) portfolio return in excess of the return predicted based on the Capital Asset Pricing Model.

Q14. Kelli Blakely, a portfolio manager with the Miranda Fund, a large cap index fund, achieved a 10.2% return during the past year while the S& 500 lost 22.5% for the same period. Her portfolio consisted of stocks and cash. Blakely was able to produce such returns through her exceptional market timing and securities selection skills. During the year, the S& exhibited a standard deviation of 44% while Blakely’s portfolio standard deviation was 37%. The calculated beta on the Miranda Fund was 1.10. The market proxy and benchmark for performance measurement purposes is the S& 500.

Using the S& 500 as a benchmark for the year, the allocation between stock and cash was a constant 97% and 3%, respectively. During the year, Blakely was concerned that the combination of a weak economy and geopolitical uncertainties would negatively impact the market returns. Taking a bold step, she changed her market allocation to an average of 50% in stocks and 50% in cash. Throughout the year, the risk-free rate of cash returns was 2%.

What is the total value added?

A) 32.70%.

B) 21.26%.

C) 34.70%.

Q15. You manage the UBZ Balanced Fund, and the following data apply.

Asset Class	Fund Weight	Benchmark Weight	Fund Return (%)	Benchmark Return (%)
Stock	0.625	0.500	9.85	8.64
Bond	0.250	0.333	5.34	5.92
Cash	0.125	0.167	2.38	2.47

The value added attributable to the pure sector allocation effect is:

A) 0.600%.

B) 0.291%.

C) 0.485%.

Q16. In comparing macro and micro performance attribution methodologies to evaluate the drivers of investment performance, it is most correct to say that:

A) micro evaluation is an incremental approach and macro evaluation focuses on deviations from benchmarks.

B) macro evaluation is an incremental approach and micro evaluation focuses on deviations from benchmarks.

C) both macro and micro evaluation focus on the deviations from benchmarks.