Confusing Graphs in Asset Allocation someone, reading, please

Carson

Can someone please explain exhibits 13 and 23 in reading 26 in the curriculum. I'm very confused.

Zestt

It’s not the most intuitive representation of data; that’s for sure. I’ll use exhibit 23 (same representation as 13) because it is easier to explain by comparing exhibit 23 to exhibit 22 on the previous page. First of all, the x-axis in ex 23 is numbered 0 to 100. Zero maps to the GMV portfolio (end of efficient frontier line in southwest quadrant of ex 22). 100 maps to the other end of the eff frontier line in the NW quadrant of ex 22. As you move along the x-axis in ex 23, you are basically just moving along the efficient frontier line from GMV to the other end of the line, which is DJGI Asia Pacific ex Japan TR. Now for the y-axis – if you stop at any given place on the x-axis and draw a straight line up and down, you will see the allocation of the different assets for that particular level of std dev. For example, stop at 20 on the x-axis in exhibit 23 and follow the line up. First you have DJGI Americas TR, which looks like about 48% of portfolio. Then you have DJGI Asia pacific ex Japan TR, which looks to be about 24%. Then you move up to DJGI Europe/Africa ex UK and S. Africa, which looks like about 18%, and finally you have DJGI Japan TR USD, which looks like about 10%. Moving up and down the vertical line you drew from point 20 on the x-axis shows you the four asset classes that make up that point on the efficient frontier and they add to 100%.