Question

Consider the following information regarding the performance of a money manager in a recent month. The table represents the actual return of each sector of the manager’s portfolio in column 1, the fraction of the portfolio allocated to each sector in column 2, the benchmark or neutral sector allocations in column 3, and the returns of sector indices in column 4.

	Actual Return		Actual Weight	Benchmark Weight	Index Return
Equity	2	%	0.5	0.4	2.5% (S&P 500)
Bonds	1.8		0.3	0.4	2 (Barclay’s Aggregate)
Cash	0.6		0.2	0.2	0.7

a-1. What was the manager’s return in the month? (Do not round intermediate calculations. Input all amounts as positive values. Round your answer to 2 decimal places.)

a-2. What was her overperformance or underperformance? (Do not round intermediate calculations. Input all amounts as positive values. Round your answer to 2 decimal places.)

b. What was the contribution of security selection to relative performance? (Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.)

c. What was the contribution of asset allocation to relative performance? (Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.)

Answer 1

A C D E F G H 1 Bench mark Actual weight weight 40% 50% 40% 30% 20% 20% 3 Equity 4 Bonds 5 Cash Actual return 2% 1.80% 0.60% Bench mark return 2.50% Manager Index return return 1.00% 1.00% 0.54% 0.80% 0.12% 0.14% 1.66% 1.94% Excess Contribution of Excess Contribution of performance security selection weight lasset selection -0.50% -0.25% 10% 0.25% -0.20% -0.06% -10% -0.20% -0.10% -0.02% 0% 0.00% -0.33% 0.05% 2% 0.70% 8 a-1) 9 Manager return = 1.66% 10 11 a-2) 12 Under performance of manager = 1.66% - 1.94% = 0.28% 13 14 b) 15 Contribution of security selection to relative performance = -0.33% 16 c) 17 Contribution of asset allocation to relative performance = 0.05% 18

EXCEL FORMULA:

B C D | Ε 1 3 Equity 4. Bonds 5 Cash 6 Bench mark Actual Actual weight weight return 0.4 0.5 0.02 0.4 0.3 0.018 0.2 0.2 0.006 Bench mark Manager Excess Contribution of Excess return return Index return performance security selection weight 0.025 =C3*D3 =B3*E3 =D3-E3 =C3*H3 =C3-B3 0.02 =C4*D4 =B4*E4 =D4-E4 =C4*H4 =C4-B4 0.007 =C5*D5 =B5*E5 =D5-E5 =C5*H5 =C5-B5 =SUM(F3:F5) =SUM(G3:65) =SUM(13:15) Contribution of asset selection =E3*13 =E4*14 =E5*45 =SUM(K3:K5) 7 8 2-1)

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