BHB Model as we see in financials that managers has over wt that sector compared to benchmark which is giving us higher re

Andd in the allocation it is having a positive impact of 2.17%.

As we see in health care and IT that the portfolio manager has under weighted the sectors that are performing better than the

Allocation Effect Selection Effect Interaction Effect

(Wp-Wb)*Rb (Rp-Rb)*Wb (Wp-Wb)*(Rp-Rb)
nchmark which is giving us higher returns 15.2% compared to benchmark return 14.8% that means a allocation manager has made a good

s that are performing better than the benchmark (25.1% and 20.1% respectively) then the avg benchmark that is 14.8% , so he has not mad
 allocation manager has made a good decision so he should be rewarded

mark that is 14.8% , so he has not made a wise allocation decision here and that is why it has a negative allocation impact.
ve allocation impact.
The following information is available for an actively managed portfolio and its benchmark -
Stock Portfolio Weight (Wp) Benchmark Weight (Wb) Expected Return Active Return
A 22% 25% 12% -3%
B 20% 25% -6% -5%
C 21% 25% 4% -4%
D 37% 25% 19% 12%
Calculate Portfolio Active Returns 2.06%

Solution:
Portfolio Return 9.31%
Benchmarks Return 7.25%
Active Return 2.06%
 Security Weight (%) Return (%)
A 25% 4.80%
B 50% 2.50%
C 25% -1.20%
Calculate Returns of the Portfolio (Combining Securities A,B,C) using Return Contribution Method

Solution:

Security Weight (%) Return (%) Return Contribution

A 25% 4.80% 1.200%
B 50% 2.50% 1.250%
C 25% -1.20% -0.300%
2.15%
Return contribution analysis can be used to:
(A) measure the investment risk relative to the benchmark
(B) compare the relative impact of securities within a portfolio
(C) identify the investment value added from the asset weighting decisions relative to the benchmark

Solution:

(B) compare the relative impact of securities within a portfolio

Return Contribution Ananlysis help us to measure weighted return of seprate

investments within the portfolio which help to know the impact of each investment in
the portfolio.
Return attribution can best be used to:
(A) measure volatility within a portfolio
(B) adjust performance returns for external cash flows
(C) analyze the value added by active investment decisions

Solution:
(C) analyze the value added by active investment decisions
Return attribution attempts to identify investment management value added by:
(A) identifying which security selection decision was the best overall within the portfolio
(B) focusing on the analysis of holdings that have made the greatest contribution to return
(C) decomposing the excess return into the separate contributors to excess return from
allocation and selection decisions relative to the benchmark

Solution:

(C) decomposing the excess return into the separate contributors to excess return
from allocation and selection decisions relative to the benchmark
Risk attribution is best described as concerned with identifying:
(A) the level of risk in a portfolio
(B) contributions to a portfolio’s alpha risk
(C) the contributors to risk either in a benchmark- relative or absolute sense

Solution:
(C) the contributors to risk either in a benchmark- relative or absolute sense
Following data shows Sector Allocation and Returns generated by a fund manager. You are required to calculate the
excess returns earned by the portfolio manager and state the reason for the difference.

Sector Portfolio Weight (%) Benchmark Weight (%) Portfolio Returns (%)
Energy 50.00% 50.00% 18.00%
Pharma 30.00% 20.00% -3.00%
Financials 20.00% 30.00% 10.00%
Total 100.00% 100.00% 10.10%

Solution:

Sector Portfolio Weight (%) Benchmark Weight (%) Portfolio Returns (%)
Energy 50.00% 50.00% 18.00%
Pharma 30.00% 20.00% -3.00%
Financials 20.00% 30.00% 10.00%
Total 100.00% 100.00% 10.10%
er. You are required to calculate the
erence.

Benchmark Returns (%)

10.00%
-2.00%
12.00%
8.20%

(Wp-Wb)*Rb (Rp-Rb)*Wb (Wp-Wb)*(Rp-Rb)

Benchmark Returns (%) Allocation Effect Selection Effect Interaction Effect
10.00% 0.00% 4.00% 0.00%
-2.00% -0.20% -0.20% -0.10%
12.00% -1.20% -0.60% 0.20%
8.20% -1.40% 3.20% 0.10%
Active Return 1.90% 1.90%
Following data shows Sector Allocation and Returns generated by a fund manager. You are required to calculate the exc
returns earned by the portfolio manager and state the reason for the difference using the Brinson–Hood–Beebower (BH
Model

Sector Portfolio Weight (%) Benchmark Weight (%) Portfolio Returns (%)
Energy 50.00% 50.00% 18.00%
Pharma 30.00% 20.00% -3.00%
Financials 20.00% 30.00% 10.00%
Total 100.00% 100.00% 10.10%

Solution:

Sector Portfolio Weight (%) Benchmark Weight (%) Portfolio Returns (%)
Energy 50.00% 50.00% 18.00%
Pharma 30.00% 20.00% -3.00%
Financials 20.00% 30.00% 10.00%
Total 100.00% 100.00% 10.10%

In this portfolio he has over weighted a sector i.e. Pharma that is performing 2% but the overall po
same as in Financial sector but giving a negative returns
u are required to calculate the excess
the Brinson–Hood–Beebower (BHB)

Benchmark Returns (%)

10.00%
-2.00%
12.00%
8.20%

Benchmark Returns (%) Allocation Effect Selection Effect Interaction Effect

10.00% 0.00% 4.00% 0.00%
-2.00% -0.20% -0.20% -0.10%
12.00% -1.20% -0.60% 0.20%
8.20% -1.40% 3.20% 0.10%
Active Return 1.90% 1.90%

s performing 2% but the overall portfolio is giving 10.10% so he should be rewarded

Following data shows Sector Allocation and Returns generated by a fund manager. You are required to calculate the exc
returns earned by the portfolio manager and state the reason for the difference using the Brinson–Fachler (BF) Model

Sector Portfolio Weight (%) Benchmark Weight (%) Portfolio Returns (%)
Energy 50.00% 50.00% 18.00%
Pharma 30.00% 20.00% -3.00%
Financials 20.00% 30.00% 10.00%
Total 100.00% 100.00% 10.10%

Solution:

Sector Portfolio Weight (%) Benchmark Weight (%) Portfolio Returns (%)
Energy 50.00% 50.00% 18.00%
Pharma 30.00% 20.00% -3.00%
Financials 20.00% 30.00% 10.00%
Total 100.00% 100.00% 10.10%
u are required to calculate the excess
the Brinson–Fachler (BF) Model

Benchmark Returns (%)

10.00%
-2.00%
12.00%
8.20%

Benchmark Returns (%) Allocation Effect Selection Effect Interaction Effect

10.00% 0.00% 4.00% 0.00%
-2.00% -1.02% -0.20% -0.10%
12.00% -0.38% -0.60% 0.20%
8.20% -1.40% 3.20% 0.10%
Active Return 1.90% 1.90%
Ms. Sunidhi is working with an MNC at Mumbai. She is well versed with the portfolio management techniques and wants to te
technique with those from a passive buy and hold strategy. The fund consists of equities only and the ending NAVs of the fun

Month Ending NAV (Rs. / unit) Month Ending NAV (Rs. / unit)
Dec-08 40 May-09 37
Jan-09 25 Jun-09 42
Feb-09 36 Jul-09 43
Mar-09 32 Aug-09 50
Apr-09 38 Sep-09 52
Assume Sunidhi had invested a notional amount of Rs. 2 lakhs equally in the equity fund and a conservative portfolio (of bon
increased or decreased by 15%.
You are required to determine the value of the portfolio for each level of NAV following the Constant Ratio Plan
200000
Month Ending NAV (Rs. / unit) % change in the f
Dec-08 40 5000
Jan-09 25 5000 -37.50%
Feb-09 36 5000 44.00%
Mar-09 32 5000 -11.11%
Apr-09 38 5000 18.75%
May-09 37 5000 -2.63%
Jun-09 42 5000 13.51%
Jul-09 43 5000 2.38%
Aug-09 50 5000 16.28%
Sep-09 52 5000 4.00%
260000

130.00%

Solution Option 1 Option 2

Month Ending NAV (Rs. / unit) Passive Buy and Hold NO. OF UNITS Equity
Dec-08 40 200000 2500 100000
Jan-09 25 125000 2500 62500
3250 81250

Feb-09 36 180000 117000

2753 99125

Mar-09 32 160000 2753 88096

Apr-09 38 190000 104614

2680 101869.5

May-09 37 185000 2680 99160

Jun-09 42 210000 2680 112560
Jul-09 43 215000 2680 115240
Aug-09 50 250000 134000
2358.0 117934.75

Sep-09 52 260000 122616

management techniques and wants to test one of the techniques on an equity fund she has constructed and compares the gains and losse
ties only and the ending NAVs of the fund he constructed for the last 10 months are given below:

nd and a conservative portfolio (of bonds) in the beginning of December 2008 and the total portfolio was being rebalanced each time the

g the Constant Ratio Plan

units Total amt bonds Fund value at the be Rebalancing Fund value
2500 200000 100000 100000
125000

Option 2
Cash Total Rebalancing Action % Change
100000 200000
100000 162500 0.1875
81250 162500 750

81250 198250 44.0%

99125 198250 497

99125 187221 -11.1%

99125 203739 18.8%

101869.5 203739 73

101869.5 201029.5 -2.6%

101869.5 214429.5 13.51%
101869.5 217109.5 2.38%
 101869.5 235869.5 16.28%
117934.75 235869.5 322.0

117934.75 240550.75 4.00%

ompares the gains and losses from the

ing rebalanced each time the NAV of the fund

Money in Money out