cross-ied

Which of the following measures of portfolio dispersion is least likely to reflect an outlying portfolio?

A) Mean absolute deviation.

B) Standard deviation.

C) Interquartile range.

---

Of the four dispersion measures, only the interquartile range ignores the values of outliers. This measure provides the value of the second and third quartiles, and is not affected by individual portfolio results within the top and bottom quartiles.

cross-ied

Mesa Asset Management has claimed compliance with the Global Investment Performance Standards (GIPS®) for many years and it is now January 1, 2011. Robert Flay, managing director for Mesa wants to go beyond merely complying with the standards and wants to incorporate all of the GIPS recommendations, particularly those dealing with presentation and reporting. Flay asks two of his performance analysts, Catherine Cora and Luigi Batali for suggestions as to how Mesa can incorporate the recommendations.

Cora:	“Mesa is permitted to link our noncompliant annual performance data from 1996-1999 to our GIPS compliant data, as long as we meet the disclosure requirements. GIPS reporting recommendations suggest that we eliminate all non-compliant data after presenting the required 5 years of compliant historical performance.”
Batali:	“Including a measure of the standard deviation of composite returns is extra information that will provide prospective clients with information regarding the fluctuation of composite returns over time.”

After listening to their statements, Flay should:

A) disagree with both Cora, but agree with Batali.

B) disagree with both Cora and Batali.

C) agree with Cora, but disagree with Batali.

---

Flay should disagree with both Cora and Batali. According to Standard 5.A.2. For periods beginning on or after January 1, 2011, firms must present for each annual period:

• Three-year annualized ex-post standard deviation using monthly returns for the composite and benchmark.
• An additional 3-year ex-post risk measure if management feels standard deviation is inappropriate. The firm must match the periodicity of calculated returns used for the composite and benchmark.

Note that this standard deviation measure would be different from the internal dispersion measure that measures the standard deviation within the composite (relative to the average composite return). Recommendations for presenting relevant composite-level risk measures include: Standard 5.B.5. For each year that annualized composite and benchmark returns are reported, the corresponding annualized standard deviation of monthly returns for the composite and benchmark. Standard 5.B.6. Additional ex-post composite risk measures.
Although the recommendations do not suggest eliminating non-compliant data according to Standard 5.B.8, Firms should comply with the GIPS for all historical periods, this indicates firms should bring non-compliant data that is linked with compliant data into compliance.

cross-ied

Three portfolio managers left their previous employer two years ago to form Atomic Investment Management. The reason for their departure was a desire to be solely responsible for investment decisions as opposed to the consensus approach that was utilized at their old firm. Atomic wants to claim compliance with the Global Investment Performance Standards (GIPS), but does not have a 5-year minimum compliance history. Under the GIPS standards, which of the following actions may Atomic take in order to claim compliance? Atomic may:

A) present a 2-year GIPS-compliant performance history.

B) link three years of the managers' performance history from the previous employer to the 2-year history since Atomic's inception with a clear and unambiguous disclosure.

C) not present its performance in compliance with the GIPS until it has established a 5-year performance history.

---

Atomic does not meet the test of performance portability under GIPS standard 5.A.48.a. Thus, performance results from the previous employer cannot be linked to or used to represent Atomic’s historical record. In any case, Atomic is not required to present a 5-year GIPS-compliant performance record. Since Atomic is less than five years old, it can claim compliance with GIPS by presenting a GIPS-compliant performance history for the two years since its inception.

cross-ied

Assume that on October 20, 2005, Firm X, which is in compliance with the Global Investment Performance Standards (GIPS), acquired the assets for Firm Z, which is not in compliance with the GIPS standards. Until what date may Firm X continue to claim compliance with the Standards before it must have the assets of Firm Z GIPS compliant?

A) October 20, 2006.

B) January 1, 2007.

C) January 1, 2006.

---

Under GIPS standard 5.A.48.b, if a compliant firm acquires or is acquired by a non-compliant firm, the firms have one year to bring the non-compliant firm’s acquired assets into compliance.

cross-ied

Which of the following is NOT a Global Investment Performance Standards (GIPS) presentation and reporting requirement?

A) Performance for periods of less than one year must be annualized.

B) A measure of the dispersion of individual component portfolio returns around the aggregate composite return.

C) The composite creation date.

---

Standard 5.A.4 requires that performance for periods of less than one year must not be annualized.

cross-ied

Assume that on January 1, 2005, a 15-year old firm with no Global Investment Performance Standards (GIPS) compliant performance history wishes to claim compliance with the GIPS standards. Which of the following accurately reflects the appropriate action for the firm to take?

A) Comply with GIPS for the year beginning January 1, 2004, and report four additional years of performance history (five total) and disclose why the earlier years are not GIPS compliant.

B) Comply with the GIPS standards for the 5-year period January 1, 2000, through December 31, 2004, and report five additional years of non-GIPS-compliant performance and disclosure of why the performance in the earlier years is not GIPS compliant.

C) Comply with GIPS for the year beginning January 1, 2004, and report nine additional years of performance history (ten total) and disclose why the earlier years are not GIPS compliant.

---

In order to claim GIPS compliance, a firm must present at least five years of annual investment performance that is compliant with GIPS. If a firm or composite is less than five years old, the performance since the inception of the firm or composite must be presented. A firm may link a non-GIPS-compliant performance record to their 5-year compliant history as long as only GIPS-compliant performance is presented for periods after January 1, 2000, and the firm discloses the periods of non-compliance with an explanation of why the presentation is not GIPS compliant (Standard 4.A.15 and 5.A.1.a).

cross-ied

In January 2003, the Medusco Investment firm has decided to present its performance history in compliance with the Global Investment Performance Standards (GIPS). Medusco was formed on January 1, 1992, and has never before presented its performance results in compliance with the GIPS standards. Which of the following actions must Medusco take in order to claim GIPS compliance?

A) Present GIPS-compliant performance results for the 5-year period from January 1, 1998, through December 31, 2002, and report five additional years of non-GIPS-compliant performance with a disclosure explaining why the performance in the earlier years is not GIPS-compliant.

B) Present GIPS-compliant performance results for the 5-year period from January 1, 1998, through December 31, 2002.

C) Retroactively comply with GIPS for periods after January 1, 2000, and report non-GIPS-compliant performance results for the periods January 1, 1993, through December 31, 1999, with a disclosure explaining why these earlier years are not GIPS-compliant.

---

In order to claim GIPS compliance, Medusco must present at least five years of annual investment performance results that are compliant with GIPS. Medusco may, at its discretion, add an additional five years of results that are not GIPS-compliant to their five-year compliant history with a disclosure of the period of noncompliance and an explanation of why the presentation for these periods is not GIPS compliant (Standard 4.A.15 and 5.A.1.a).

cross-ied

With respect to reporting a composite’s creation date and any changes in a composite’s name, which is a requirement of GIPS?

A) The creation date but not changes in a composite’s name.

B) Changes in a composite’s name but not its creation date.

C) Both the creation date and any changes in a composite’s name.

---

Standard 4.A.10: firms must disclose the composite creation date.
Standard 4.A.18: firms must disclose any changes in a composite’s name.

cross-ied

With respect to fees and to reporting returns under GIPS, firms:

A) can report returns either net of fees or gross of fees.

B) must report returns gross of fees and never net of fees.

C) must report returns net of fees and never gross of fees.

---

Firms can be reported either way, but they must be labeled accordingly (Standards 4.A.5 and 4.A.6).

cross-ied

Of the following, with respect to GIPS, the one that is not a requirement and is only a recommendation is:

A) a list of other firms contained within a parent company.

B) how the firm defines itself to determine the total assets.

C) a list of any composites that have been discontinued within the last five years.

---

Standard 4.B.5: The Standards make the recommendation that if a parent company contains multiple defined firms, each firm within the parent company should disclose a list of the other firms contained within the parent company.
Standard 4.A.2: The definition of the “firm” used to determine the firm’s total assets and firm wide compliance is a required disclosure.
Standard 0.A.10: The list must include not only all the firm’s current composites but also any that have been discontinued within the last five years.