manchester88

Which of the following are examples of an asset allocation strategy used by a portfolio manager?

A) Sector rotation.

B) Both market timing and sector rotation.

C) Selecting assets within a market segment that will outperform the assets contained within the corresponding benchmark index.

---

Both market timing and sector rotation are examples of asset allocation strategies.

manchester88

The results of a macro performance attribution analysis of a fund is listed below.

	Fund Value
Beginning value	$100,000
Net contributions	100,000
Risk-free asset	101,000
Asset category	108,000
Benchmarks	109,000
Investment strategies	110,000
Allocation effects	112,000

Had the manager only engaged in a pure index approach, instead of 12%, the return of the fund would have been:

A) 9%.

B) 8%.

C) 10%.

---

Return = 8% = ($108,000 − $100,000)/$100,000.
The Asset Category investment strategy assumes that the Fund’s beginning value and external cash flows are invested passively in a combination of the designated asset category benchmarks, with the specific allocation to each benchmark based on the fund sponsor’s policy allocation to those asset categories. In essence, this approach is a pure index fund approach. The asset category corresponds to a pure index approach. The dollar return would have been $8,000 or 8% on the initial $100,000.

manchester88

In using micro attribution analysis to break down the performance of the manager of a fund, the analyst finds the following for a particular asset class:

Portfolio Weight	9%
Sector Benchmark Weight	7%
Sector Portfolio Return	4%
Sector Benchmark Return	3%
Benchmark Return	0.2%

Based upon these numbers, the within sector selection return would be:

A) 0.020%.

B) 0.056%.

C) 0.070%.

---

The micro attribution breakdown is below:
Pure sector allocation return:

= [0.09 – 0.07] × [.03 – 0.002]
= 0.056%

Within sector selection return:

= 0.07 × [.04 – .03]
= 0.07%

Allocation/selection interaction return:

= [0.09 – 0.07] × [.04 – .03]
= 0.02%

manchester88

An analyst has gathered the following asset allocations and returns, including an appropriate benchmark, covering the past twelve months for the Triad Fund.

	Fund and Benchmark Weights		Fund and Benchmark Returns
Asset Class	Fund	Benchmark	Fund	Benchmark
Stock	0.65	0.50	17.00	13.80
Bonds	0.25	0.40	8.10	8.30
Cash	0.10	0.10	3.85	4.05

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

A) 0.54%.

B) 0.83%.

C) 0.16%.

---

Attributable to the pure sector allocation effect: (0.65 – 0.50)(13.8 – 10.63) + (0.25 – 0.40)(8.3 – 10.63) + (0.10 – 0.10)(4.05 – 10.63) = 0.83%.
The benchmark return is calculated as the weighted average of individual asset returns in the benchmark: (.5 x 13.8) + (.4 x 8.3) + (.1 x 4.05) = 10.63%  

---

The value added to the Triad Fund returns attributable to the within-sector selection effect is:

A) 2.23%.

B) 1.96%.

C) 1.50%.

---

Attributable to the within-sector selection effect: (0.5)(17.0 – 13.8) + (0.4)(8.1 – 8.3) + (0.10)(3.85 – 4.05) = 1.5%.

manchester88

Robert Brown is in the process of decomposing the various sources of return to his bond portfolio that yielded a return of 10%. The actual treasury yield was 8%, which is 0.5% better than the expected yield of 7.5%. In addition, Brown has ascertained that his portfolio benefited by 0.50% due to sector allocation and 0.25% from allocation/selection interaction. Based on this information, how much of the portfolio's overall return is attributable to within-sector selection?

A) 1.00%.

B) 1.25%.

C) 1.75%.

Expected treasury yield	= 7.50%
Unexpected treasury yield	= 0.50%
Return from sector allocation	= 0.50%
Return from allocation/selection interaction	= 0.25%
Return attributable to within-sector selection	= 1.25%
(can be backed out given the other information)
Total return	= 10.0%

manchester88

You have performed attribution analysis for the XVX Portfolio and have determined that the sector effect was 0.322%, the within-sector selection was -0.157%, and the allocation/selection effect was 0.061%. The benchmark return was 8.441%. How much was the manager’s total value added for XVX, and what was the XVX Portfolio’s return during the period?

A) 0.418%, 8.859%.

B) 0.226%, 8.215%.

C) 0.226%, 8.667%.

---

Total value added = 0.322 + (−0.157) + 0.061 = 0.226%. Portfolio return = 8.441 + 0.226 = 8.667%.

manchester88

Which of the following statements relating to allocation/selection attribution and fundamental factor model attribution is least accurate?

A) The strength of allocation/selection attribution is that it disaggregates performance effects of manager’s decisions between sectors and securities.

B) The strength of allocation/selection attribution is that it is relatively easy to calculate.

C) The strength of fundamental factor analysis is its simplicity and the reliability of the correlations it produces.

---

A key weakness of fundamental factor model attribution is that it can prove to be complex leading to the potential for spurious correlations.

manchester88

Which of the following is NOT a recognized weakness of allocation/selection attribution?

A) Security selection decisions have a knock on effect on sector weighting decisions.

B) Can be confusing as it reflects the joint effect of allocating weights to both securities and sectors.

C) Exposures to the factors need to be determined at the start of an evaluation period.

---

Exposure to the factors need to be determined at the start of an evaluation period is a weakness of fundamental factor model attribution.

manchester88

Which of the following steps in the constructions of a suitable fundamental factor micro attribution is least accurate?

A) Identify the fundamental factors that determine unsystematic returns.

B) Determine the performance of each of the factors.

C) Specify a benchmark.

---

It is necessary to determine the fundamental factors that determine the systematic (no unsystematic) returns. Both of the other statements are correct.

manchester88

Which of the following statements regarding fundamental factor model micro attribution is least accurate?

A) The results will look very similar to a returns-based style analysis.

B) The results will indicate the source of portfolio returns, based upon benchmark factor exposures versus the manager’s normal factor exposures.

C) It will be necessary to identify the fundamental factors that will generate systematic returns.

---

The results will indicate the source of portfolio returns, based upon actual factor exposures (not benchmark) versus the manager’s normal factor exposures. Both of the other statements are true in the context of fundamental factor model micro attribution