Question

An investment manager’s portfolio consists of stocks listed on the Stock Exchange of Mauritius as per table below.

Stock	Sector	No. of Shares	Price at Start   (in Rs.)	Price at End   (in Rs.)
Air Mauritius	Transport	225,000	16.00	15.10
Lux Island Resort Ltd	Leisure & Hotels	390,000	39.30	56.50
MUA Co Ltd	Banks & Insurance	75,000	61.50	76.00
MCB Group	Banks & Insurance	200,000	210.00	205.50
Livestock Feed Ltd	Industry	485,000	21.65	26.00
Automatic Systems Ltd	Leisure & Hotels	25,000	115.00	75.00
ABC Motors Co Ltd	Commerce	38,000	128.25	95.50
Quality Beverages Ltd	Industry	345,000	7.98	6.04
Harrel Mallac Ltd	Commerce	100,000	108.00	109.50

 

a)              Compute the Allocation by Individual Position and Sector Allocation of the manager’s portfolio.

[10 marks]

 

b)              Compute the Allocation Effect, Selection Effect and Interaction Effect for each sector with respect to the benchmark return given in table below.

 

 

 

 

Sector	Weighted Return (%)	Weight (%)
Banks & Insurance	0.50	45.00
Commerce	2.00	20.00
Industry	5.00	15.00
Leisure & Hotels	25.00	13.00
Transport	5.00	7.00
TOTAL	4.98	100.00

(7 marks)

 

c)               Compute the Active Management Effect and determine whether or not the investment manager has contributed positively to the portfolio’s return. Also determine which sector has added the highest amount to the portfolio’s return.

(5 marks)

d)       Performance attribution is a set of techniques that performance analysts use   to explain why a portfolio’s performance differed from the benchmark. Discuss.                                                                                                  (8 marks)