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Flashcards in S17 Deck (34):
1

performance evaluation components

measurement
attribution
appraisal

2

money weighted rate of return

NPV

3

time weighted rate of return

(1+T1)*(1+T2)* ....

4

when TWRR is preferred

when manager doesn't control the CF

5

3 components of portfolio return

M market index return
+
S style contribution (Normal return - Market return)
+
A active return (Portfolio - benchmark return)

6

7 benchmark properties

SAMURAI
- specified in advance
- appropriate
- measurable
- unambiguous
- reflective of manager's current investment -opinions
- accountable
- investable

7

types of benchmarks

absolute
manager universes
broad market indices
style indices
factor based
return based
custom security based

8

where macro and where micro performance attribution is used

macro - at the fund sponsor level
micro - at the investment manager level

9

3 inputs in the macro performrance attribution

policy allocations
benchmark portfolio return
fund returns, valuation and external CF

10

6 levels of macro attribution analysis

net contributions
rfr
asset categories (according to strategic allocation)
benchmarks (according to tactical allocation)
investment managers
allocation effects (residual value close to zero)

11

micro performance attribution

pure sector allocation = (Wp-Wb)*(Rb - R)

+

allocation/selection interaction = (Wp-Wb)*(Rp-Rb)

+

withing sector selection = Wb*(Rr-Rb)

12

fixed income performance attribution analysis

Interest rate effect
- expected
- unexpected
Interest rate management effect
- duration
- convexity
- yield curve change
Other managment effects
- sector
- bond selection
- transaction costs
Trading activity return (residual)

13

alpha =

= actual return - expected return

14

expected return (SML CAPM) =

= Rfr + beta (Rmarket - RFR)

15

treynor =

( Ractual - Rfr ) / beta

16

M2 measure (modigliani and modigliani) =

Rfr + Sharpe x StandDev Market

17

information ratio =

Active return / active risk = (Ra - Rb) / StandDev (A-B)

18

treynor vs sortino

treynor is sharpe with beta
sortino is sharpe with downside deviation and MARet

19

type 1 error

keeping bad managers

20

type 2 error

firing good manager

21

original dietz method for TWRR

=( (MV1-MV0) - CF ) / (MV0 + 0.5CF)

22

Modified dietz method for TWRR

=( (MV1-MV0) - CF ) / (MV0 + Timeweighted CF)

23

benchmark coverage ratio

how closely portfolio covers the securities from the benchmark

24

A quality control chart combines the

average value added and its standard deviation to generate a confidence interval that can be used to determine statistical significance.

25

global return components

benchmark domestic return = Wb*Rbd
+
market allocation contribution = (Wp-Wb)*Rbl
+
currency allocation contribution = (Wp*Cp-Wb*Cb), Where C is currency change impact
+
security selection contribution = Wp*(Rpl-Rbl)
+
yield component = Wp*IL

26

2 period active return =

= Ra1(1+Rb2) + Ra2(1+Rp1)

27

security allocation effect (global investing) =

= Wp * ( Rp-Rb)

28

tracking error or relative risk =

SqRoot ( sum (surplus return - average surplus return) / (n-1) )

29

what performance ratios use total risk ?

sharpe and M2

30

what performance ratios use systematic risk?

treynor and expost alpha (using beta in formulas)

31

if fund is well diversified, what performance adjusted ratios to use to evaluate a new investment ?

those using systematic risk (beta)

32

when question is about strength or weaknesses of a manager, pay MASSIVE attention to

"relative to" what are strengths measured (index, etc)

33

why decomposing risks is complicated?

risks in global portfolio are correlated

34

3 potential biases in performance analysis

survivorship
assumption of normal distribution of returns
infrequent pricing