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PERFORMANCE EVALUATION QUESTION IS COMPOSED OF THREE PARTS (A, B, C) FOR A TOTAL OF 12 MINUTES Eugene Fenigore, CFA, and Barbara Mati, CFA, are responsible for overseeing the performance evaluation of a large government pension plan Fenigore and Mati are discussing the performance of the plan’s assets during which Mati discusses the three components of micro performance attribution for equity investments A State and explain the three components of micro attribution (6 minutes) Another of the plan’s portfolio managers, Gamma Managers (GM), has been assigned to actively manage the small capitalization (small cap) growth portion of the plan’s equities As part of a performance evaluation, Fenigore and Mati perform a returns-based style analysis In performing the analysis, they utilize returns from the Russell 1000 Value Index (large-capitalization), the Russell 1000 Growth Index (large-capitalization), the Russell 2000 Value Index (smallcapitalization), and the Russell 2000 Growth Index (small-capitalization) Fenigore and Mati analyze Sharpe style weights from 2011–2014 (results of the analysis are contained in Table 1) GM’s average style fit over the 4-year period is 96% Table 1: Returns-Based Style Analysis 2011 2012 2013 2014 Average Style Weight (%) Russell 1000 Large Cap Value Index 1 Russell 1000 Large Cap Growth Index 1 Russell 2000 Small Cap Value Index 1 Russell 2000 Small Cap Growth Index 97 97 98 99 Total 100 100 100 100 B Determine whether Gamma Managers is most likely utilizing an active or passive strategy and support the determination with two reasons from the data provided (3 minutes) C Based on the returns-based style analysis output, discuss whether Gamma Managers is meeting its mandated strategy (3 minutes) QUESTION IS COMPOSED OF THREE PARTS (A, B, C) FOR A TOTAL OF MINUTES Alpha Consultants provides portfolio evaluation services for institutional investors throughout Canada and is currently evaluating performance for a large pension fund One of the fund’s managers, Empire Partners, has invested in four sectors of the economy as well as holding a cash position The weights in the various sectors, returns, and overall performance of the manager and the benchmark chosen by Alpha are shown in the following table Table 1: Portfolio and Benchmark Sector Allocations Portfolio Benchmark Portfolio Benchmark Sector Weight Sector Weight Sector Return Sector Return Agricultural 24.00% 28.00% 2.90% 1.00% Consumer 13.00% 14.00% −2.00% 1.00% durables Financial 28.00% 23.00% 5.30% 6.00% Energy 31.00% 35.00% 1.60% −3.00% Cash 4.00% 0.00% 0.20% Total 100.00% 100.00% 2.42% 0.75% A Using the data in Table 1, calculate the Empire Partners manager’s pure sector allocation return in the energy sector Show your work (3 minutes) B Using the data in Table 1, calculate the Empire Partners manager’s within-sector selection return in the financial sector Show your work (3 minutes) C Using the data in Table 1, calculate the Empire Partners manager’s allocation/selection interaction return in the agricultural sector Show your work (3 minutes) QUESTION HAS TWO PARTS (A, B) FOR A TOTAL OF 10 MINUTES Sal Holo and Che Back are discussing performance attribution analysis for the accounts they manage Accounts E47 and E36 have the same objectives and investment style They should have been managed the same way, and Back is surprised by the discrepancies in their recent monthly returns The data is shown below: Account: E47 E36 Time-weighted return (TWR) 2.47% 2.49% Money-weighted return (MWR) 2.47% 2.12% For account E15, Holo has been struggling to find a suitable benchmark E15 is an actively managed small cap growth portfolio The account mandate includes holding securities with an average market cap of 25% or less and a beta 110% or more than those of the S&P 500 Back compiles the following analysis of three potential benchmarks He tells Holo to use this analysis to test for a suitable benchmark Characteristics: Beta from regression of monthly account to benchmark returns Standard deviation of alpha where alpha is account return minus benchmark return Beta of benchmark Noncoverage ratio: % of portfolio holdings that are not held in the benchmark Benchmark turnover, annual Benchmark standard deviation Archie 1.02 Benchmark Baker Charlie 0.98 1.10 5.1% 5.7% 9.7% 0.99 2% 1.13 4% 1.12 11% 2% na 3% 10.2% 1% 15.1% A Based on the monthly performance report, determine whether the two accounts were most likely managed the same way and support your determination Discuss how external cash flows would explain the returns shown in the report Stating that ECFs can cause differences in return calculations is not a sufficient answer and will receive no credit (5 minutes) B Based on all the information, recommend the most appropriate benchmark for account E15 Explain two reasons it is the most suitable benchmark For each benchmark not selected, explain one reason it is not appropriate (5 minutes) ... Agricultural 24.00% 28.00% 2.90% 1.00% Consumer 13. 00% 14.00% −2.00% 1.00% durables Financial 28.00% 23. 00% 5 .30 % 6.00% Energy 31 .00% 35 .00% 1.60% 3. 00% Cash 4.00% 0.00% 0.20% Total 100.00% 100.00%... work (3 minutes) QUESTION HAS TWO PARTS (A, B) FOR A TOTAL OF 10 MINUTES Sal Holo and Che Back are discussing performance attribution analysis for the accounts they manage Accounts E47 and E36 have... 1.02 Benchmark Baker Charlie 0.98 1.10 5.1% 5.7% 9.7% 0.99 2% 1. 13 4% 1 .12 11% 2% na 3% 10.2% 1% 15.1% A Based on the monthly performance report, determine whether the two accounts were most
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