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%.

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

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

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%.

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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%  

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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%.

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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

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%.

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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

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%.

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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

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.

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

manchester88

Which of the following statements regarding attribution analysis, benchmarks, and evaluating portfolio managers is CORRECT?

A) Attribution analysis for bonds is virtually impossible.

B) Benchmark error is nonexistent with the Treynor measure.

C) Attribution analysis separates a portfolio manager's performance into an allocation effect and a selection effect.

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Attribution analysis can be done with bonds as it is with equities. The only difference is the categories of attribution. Benchmark error is very much a part of the Treynor measure, as it uses beta as its risk measure.

burning0spear

Value added return is defined as the:

A) fund return minus the risk-free rate of return.

B) portfolio return minus the benchmark return.

C) portfolio return in excess of the return predicted based on the Capital Asset Pricing Model.

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Value added return = Portfolio return – Benchmark return

burning0spear

Kelli Blakely, a portfolio manager with the Miranda Fund, a large cap index fund, achieved a 10.2% return during the past year while the S&P 500 lost 22.5% for the same period.
Her portfolio consisted of stocks and cash.
Blakely was able to produce such returns through her exceptional market timing and securities selection skills.
During the year, the S&P exhibited a standard deviation of 44% while Blakely’s portfolio standard deviation was 37%.
The calculated beta on the Miranda Fund was 1.10.
The market proxy and benchmark for performance measurement purposes is the S&P 500.

Using the S&P 500 as a benchmark for the year, the allocation between stock and cash was a constant 97% and 3%, respectively.
During the year, Blakely was concerned that the combination of a weak economy and geopolitical uncertainties would negatively impact the market returns.
Taking a bold step, she changed her market allocation to an average of 50% in stocks and 50% in cash.
Throughout the year, the risk-free rate of cash returns was 2%.

What is the total value added?

A) 21.26%.

B) 32.70%.

C) 34.70%.

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total value-added = overall actual fund return – overall benchmark returns
= 10.2 − (-22.5) = 32.70%

Blakely’s Miranda Fund was able to outperform the S&P 500 index by 32.7%.

burning0spear

In comparing macro and micro performance attribution methodologies to evaluate the drivers of investment performance, it is most correct to say that:

A) micro evaluation is an incremental approach and macro evaluation focuses on deviations from benchmarks.

B) both macro and micro evaluation focus on the deviations from benchmarks.

C) macro evaluation is an incremental approach and micro evaluation focuses on deviations from benchmarks.

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This is the most correct statement. The macro evaluation looks at the beginning and ending values of the entire fund and attributes the return contributed at each level of decision making. Micro evaluation looks at individual portfolios and tries to explain its return with respect to its deviation from a benchmark.