2011 AM Question 9C something, management, all, 2011, interest

yodacaia

Manager A says he adds value by actively managing duration.  I assumed the answer was that we don’t have enough information – all we know is that the interest rate effect was negative; we don’t know which of the 3 components (duration / convexity management or yield curve shape) are negative.  Duration effect could be +1% and convexity could be -2% and vice versa.
CFAI says that because he has negative interest rate management effect, he fails at duration management.  Am I missing something?

ruchita

CFAI is always right

Palantir

I don’t think there’s any over-thinking!  They asked about managing duration but only gave us information on interest rate effect.  Those are not synonyms!

amqata

markCFAIL wrote:
The second part is also bad because if other mgmt effects includes the transaction cost component, then that could of been the result of outperformance.  A stretch maybe, but unless they are gonna give numbers both questions are bad.
also the problem with part B is that it says he gained from undervalued securities.  how do you know he didnt short overvalued securities?  that is another reason why B can be “cannot determine.”

pacmandefense

I think the part of Manager A is awful.  What an unfair question.  Somewhere in fixed income we learn the 90%+ of yield curve changes are due to twists and shifts rather than parallel changes (i.e. duration), so he could have very easily had a much more negative effect from the other factors than a positive effect from duration.  So you have no idea what the contribution from duration was unless you see a breakout.

iteracom

The second part is also bad because if other mgmt effects includes the transaction cost component, then that could of been the result of outperformance.  A stretch maybe, but unless they are gonna give numbers both questions are bad.

Chuckrox

I might choose “cannot determine…”, but the over-thinking on this Q can cost points.

dyga

Curriculum doesn’t really mention “managing” convexity focus is on duration.  Yield shape is key rate duration
I actually thought Manager A explanation was clearer than Manager B.   For Manager B I put Yes originally, but then changed it because I thought Other Management Effects was too vague.    If I had Yes/No only to choose, I would have definitely said Yes.