LOS e: Demonstrate the analysis of portfolio returns into components due to the market, to style, and to active management.

Q1. Kelli Blakely is a portfolio manager for the Miranda Fund (Miranda), a core large cap equity fund. The market proxy and benchmark for performance measurement purposes is the S& 500. Although the Miranda portfolio generally mirrors the asset class and sector weightings of the S&, Blakely is allowed a significant amount of leeway in managing the fund. Her portfolio holds only stocks found in the S& 500 and cash.

Blakely was able to produce exceptional returns last year (as outlined in Table A below) through her market timing and security selection skills. At the outset of the year, she became extremely concerned that the combination of a weak economy and geopolitical uncertainties would negatively impact the market. Taking a bold step, she changed her market allocation. For the entire year her asset class exposures averaged 50% in stocks and 50% in cash. The S&’s allocation between stocks and cash during period was a constant 97% and 3%, respectively. The risk-free rate of cash returns was 2%.

Table 1 – One-Year Trailing Returns: Miranda Fund vs. S& 500

What are the Sharpe ratios for the Miranda Fund and the S& 500?

Miranda Fund                                     S& 500

A) 0.3515                                          -0.2227

B)   0.0745                                        -0.2450

C) 0.2216                                          -0.5568

Q2. What is the Treynor measure for the Miranda Fund and the S& 500?

    Miranda Fund                             S& 500

A)   0.0745                                        -0.2450

B)   0.1109                                        -0.2050

C) 0.2216                                         -0.5568

Q3. What is the Jensen measure for the Miranda Fund?

A)   0.0745.

B)   0.3515.

C)   0.3270.

Q4. What are the one-year asset class returns (stocks, cash) for Miranda and the benchmark?

    Miranda Fund (stocks, cash)                 S&P 500(stocks, cash)

A) 18.4%, 2%                                                -23.26, 2%

B ) 22.4%, 2%                                               -23.13%, 2%

C ) 18.4%, 2%                                               -23.10%, 3%

Q5. What was the effect of Blakely's active management decision on the Miranda Fund's one-year performance?

A)   20.83%.

B)   32.70%.

C)   11.87%.

Q6. What was the effect of Blakely's within-sector selection ability on the Miranda Fund's one-year performance?

A)   22.83%.

B)   11.87%.

C)   40.41%.

Q7. Given the following data, how is the manager’s performance most accurately characterized?

A)   The manager earned an excess return from style and active management.

B)   The manager earned an excess return from style but not from active management.

C)   The manager earned an excess return from active management but not from style.

Q8. Given the following data, how is the manager’s performance most accurately characterized?

A)   The manager earned an excess return from active management but not from style.

B)   The manager earned an excess return from style but not from active management.

C)   The manager earned an excess return from style and active management.

Q9. Which of the following is the most appropriate method of calculating the manager’s active return? The manager’s active return is the:

A)   market return minus the benchmark return.

B)   portfolio return minus the benchmark return.

C)   portfolio return minus the market return.

Thanks.