Question

A global equity manager is assigned to select stocks from a universe of large stocks throughout the world. The manager will be evaluated by comparing her returns to the return on the MSCI World Market Portfolio, but she is free to hold stocks from various countries in whatever proportions she finds desirable. Results for a given month are contained in the following table: Country Manager's Weight e.48 Manager's Return in Country 21% Weight In MSCI Index 0.24 0.37 0.36 0.03 Return of Stock Index for That Country 13% 2.1 Japan U.S. Germany e.27 0.15 a. Calculate the total value added of all the manager's decisions this period. (Do not round Intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.) Added value b. Calculate the value added (or subtracted) by her country allocation decisions (Do not round Intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.) Contribution of country allocation c. Calculate the value added from her stock selection ability within countries. (Do not round Intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by Aminus slon)

Answer 1

B* C AD Manager's return (%) Return of stock Index in that country (%) 13 Country UK Japan US Germany Weights in MSCI Index 0.24 0.37 0.36 0.03 Manger's weight 0.48 0.1 0.27 Mangers return (%) 10.08 1.6 2.7 0.9 Benchmark Return (%) 3.12 5.92 4.32 0.39 16 12 0.15 13 Sum 15.28 13.75 The total value added by the Manager is (15.28-13.75) 1.53% b) His value added because of the country (asset allocation) Allocation are Retunr from the benchmark index in country*( weight of portfolio manager - weight in the MSCI Index) 13*(0.48-0.24) +16*(0.1-0.37) + 12*(0.27-0.36) + 13*(0.15-0.03) -0.72% c) His value added from the stock selection would be Weight portfolio manager *(Return from the manager - return from benchmark) 0.48*(21-13) + 0.1*(16-16) +0.27*(10-12) + 0.15*(6-13) 2.25%