R13 - Performance Mensurement

Question 1

Steps to performance mensurement (3)

Answer 1

Question 2

What does an effective performance attribution process reflect?

Answer 2

100% of the portfolio’s return or risk exposure

This ensures that all aspects of the portfolio’s performance are accounted for.

Question 3

What aspect of a portfolio manager’s work is included in an effective attribution process?

Answer 3

The portfolio manager’s current decision-making process

This helps in understanding how decisions impact performance.

Question 4

What type of decisions are accounted for in an effective performance attribution process?

Answer 4

Active investment decisions taken by the portfolio manager

These decisions are crucial for analyzing performance.

Question 5

An effective performance attribution process provides a full explanation of what?

Answer 5

The portfolio’s excess return and risk

This is essential for evaluating the effectiveness of investment strategies.

Question 6

True or False: An effective attribution process can be relied upon for meaningful analysis.

Answer 6

False

Attribution that does not account for total risk and return cannot be relied upon.

Question 7

Return attribution

Answer 7

Evaluates the impact of the active portifolio managment on overall portifolio return

Question 8

Risk attribution

Answer 8

Active investment decisions on portifolio risk

Question 9

Micro attribution

Answer 9

Managers level and intend to verify if pm did what they would and understand drivers portifolio return

Question 10

Macro attribution

Answer 10

Quantifies if the decisions made are align with ssa

Question 11

Describe the return, holding, transaction based atributions

Answer 11

Question 12

F- Geométric return

Answer 12

Question 13

Explain the Brison hood method

Answer 13

Question 14

What’s the advancement on Brison Facher Method

Answer 14

More popular model
Tips teve difference between interaction effect and the ‘new’ allocation effect is that the delta return is against overall portifolio

Question 15

Liability based benchmark

Answer 15

Usually Focus on cash flow required for pay liabilities.
Used assets include nominal bonds, inflation adj, high quality stocks.

Question 16

Describe adv/disa of absolute bench

Answer 16

Adv
-Easily to compute;
Disa
- Not investable bench

Question 17

Broad market indexes bench adv/disa

Answer 17

ADV
- well recognized, Easy to understand, and Widely avaliable
- unambigous
- apropriate if reflects the current inv process of the manager
Disa
- mgt style <> from indexe

Question 18

Style indexes bench adv/disa

Answer 18

ADV
-Widely available
- appropriate if reflect managment style
Disa
- overconcetration in certain sec and sectors
- different definitions can produce quite <> bench returns

Question 19

Factor model bench - adv/disa

Answer 19

ADV
- can capture insight of factor that produce return
Disa
- not intuitivelly
- no ready avaliable and May be expensive to obtain
-Diferent factor can produce diferent outputs

Question 20

Return based bench adv/disa

Answer 20

ADV
- Easy and intuitive
- válid bench
Disa
- style indexes May not reflect managers own
- not applied to managers that change style

Question 21

F- components of portifolio return

Answer 21

P=M+S+A
M- market índex
s- style
A- active return
Way to think as a sentence the pm choose style the apropriate índex and try to beat than

Question 22

Apraissal measure objective

Answer 22

Assess whether the investment results due to skill or luck

Question 23

F- Treynor ratio

Answer 23

Amount of return by systematic risk

Question 24

F- info ratio

Answer 24

Amount of return agains bench vs. amount of Tracking risk

Question 25

F- appraisal ratio

Answer 25

Active return for vol residual term Tips Residual term given formula bellow

Question 26

Difference of sortino ratio vs. Sharpe

Answer 26

Sortino ignores ‘good’ vol (positive) by excluding into account.

Question 27

Cumulative drawdown - describe how to calculate

Answer 27

Question 28

Capture ratio explain

Answer 28

Determine the relative performance when market go up or down. When above one in a market that up, the manager performance was better that bench.

Question 29

Sortino Ratio

Answer 29

Only consider the standard deviation of the downside risk. Rt is the target rate return.

Question 30

F-misfit return

Answer 30

Misfit return = normal benchmark - IPS benchmark

Question 31

What's the special atribute to sortino ratio

Answer 31

Assess performance when return distributions are not symmetrical

Question 32

All actual, no fee paying, non discretionary must be included in composite. True or false

Answer 32

False.All actual, fee paying, discretionary must be included in composite.

Question 33

Explain the difference between top down vs. bottow up relative attibutions

Answer 33

1. Top-Down Relative Attribution Approach: Starts at the aggregate (portfolio level) and drills down into sector and security contributions. Focus: Evaluates high-level decisions such as asset allocation and broad investment strategy. Key Components: Asset Allocation Effect: Impact of overweighting or underweighting asset classes or sectors. Selection Effect: Impact of security selection within sectors or asset classes. Interaction Effect (Optional): Measures combined effects of allocation and selection. Use Case: Useful for portfolio managers and CIOs evaluating strategic allocation and sector positioning. 2. Bottom-Up Relative Attribution Approach: Starts at the individual security level and aggregates contributions upward to determine total portfolio attribution. Focus: Evaluates security selection decisions and their contribution to portfolio performance. Key Components: Security Selection Effect: Measures stock-picking skill within each sector or asset class. Sector/Asset Group Aggregation: Aggregates individual security contributions to determine total excess return. Use Case: More relevant for equity analysts and active managers focusing on stock selection. Example: If a manager picks a specific tech stock that significantly outperforms, the Bottom-Up Attribution will allocate the excess return directly to security selection, rather than an overall sector bet.