From my notes. Apologies in advance if they might be incorrect. Feel free to make changes if necessary. 1) Capital gains = (Lp)*(Pw) 2) Market Allocation = (Lb)*(Pw - Bw) 3) Market Selection = (Lb)*(Pw) 4) Currency allocation = [Pw(Dp - Lp) - Bw(Db - Lb)] 5) Currency Contribution = Pw*(Dp - Lp) 6) Security Selection = (Lp - Lb)*(Pw) Security Selection = Capital gains - Market selection Key: Lp = Local return in portfolio Lb = Local return in benchmark Dp = domestic return in portfolio Db = domestic return in benchmark Pw = Portfolio weight Bw = Benchmark weight
Good sum. I was doing that yesterday and got confused between schwesers formulas and CFAI ways of calculation.
“Security Selection Contribution” is the same as 6) Security Selection? Is that why it’s not called “Security Selection Allocation?”
Isn’t this a Decompisition, not an attribution?
If you’re asked to compare the portfolio performance to a global benchmark (e.g. MSCI), then the currency allocation contribution’s slightly different… see CFAI V6 R47, top of page 213. Basically it’s the difference b/w the currency contribution of the portfolio to that of the global index. So, in their simple example on pp. 214-5: the portfolio outperformed the benchmark by 466 bps: Benchmark return = -1.53% Market Allocation Contribtion = - 1.00% (mgr underweighted Japan which went up in LC terms… and overweighted Europe which did the opposite) Currency Allocation Contribtuion = 0.66% (mgr weights in Japan/Europe were good b/c the Yen declined against the $, the Euro appreciated) Yield component = 0% (easy, no dividends) Security Selection = 5% (is the rate of return in LC less the mkt index in LC…which you have above) This is all completely confusing and I hope we don’t see on June 5th… but if we do, it’s likely to look like the above example from the CFA text (again, pp. 214-5). In fact, there’s a recent a.m. exam question that looks almost exactly like this one.
Thanks guys. I was doing book 6 p243 #5 C & D. Question C asks for market component, security selection contribution, currency component, and question D asks for market allocation, currency alloation and security selection. I was confused with “security selection contribution” in C and “security selection” in D. This is the second time I’m doing these EOC questions but still confusing even after I spent the whole day doing book 6 today 
Neveruse_95%_everagain Wrote: ------------------------------------------------------- > If you’re asked to compare the portfolio > performance to a global benchmark (e.g. MSCI), > then the currency allocation contribution’s > slightly different… see CFAI V6 R47, top of page > 213. > Basically it’s the difference b/w the currency > contribution of the portfolio to that of the > global index. I don’t get it. Would you please explain what do you mean by “Basically it’s the difference b/w the CURRENCY CONTRIBUTION of the portfolio to that of the global index” ?
= (portion of the portfolio’s return due to the currency) - (portion of the benchmark’s return due to the currency). Honestly it’s less confusing than it reads… recommend checking out pp. 214-5 of CFAI Volume 6, math’s not so terrible. p.s. sparty419’s formula isn’t wrong, it’s just they give 2 ways to calculate
Global Attribution & related : Practical Application Schweser Vol 5 page 149, For the Exam describes a “contradiction” within the curriculum. Schweser says it can “probably” be ignored. Not good enough. Market Allocation = SUM [(Lb)*(Pw - Bw)] and Pure Sector Allocation formulas = SUM [(Lb - {TOTAL Lb})*(Pw - Bw)] The CFAI Curriculum in Global Attribution Reading, volume 6, page 224 actually uses the formula as for Pure Sector Allocation. Of course, the two formulas give the same total, but different individual components. Basically, the main challenge is being sure which formula to use if the question asks about allocation effect for components when multiple components are given in a question. It would be great if the exam question would say “attention! you are in the global allocation section.” Well, it might but it might not. My rule is related to the practical application: if the question _mentions_currency_selection_ --> Market Allocation formula otherwise --> Pure Sector Allocation formula.
Eman Wrote: ------------------------------------------------------- > Global Attribution & related : Practical > Application > > Schweser Vol 5 page 149, For the Exam describes a > “contradiction” within the curriculum. Schweser > says it can “probably” be ignored. Not good > enough. > > Market Allocation = SUM [(Lb)*(Pw - Bw)] > and > Pure Sector Allocation formulas = SUM [(Lb - > {TOTAL Lb})*(Pw - Bw)] > > The CFAI Curriculum in Global Attribution Reading, > volume 6, page 224 actually uses the formula as > for Pure Sector Allocation. > Of course, the two formulas give the same total, > but different individual components. > > Basically, the main challenge is being sure which > formula to use if the question asks about > allocation effect for components when multiple > components are given in a question. It would be > great if the exam question would say “attention! > you are in the global allocation section.” Well, > it might but it might not. > > My rule is related to the practical application: > if the question _mentions_currency_selection_ --> > Market Allocation formula > otherwise --> Pure Sector Allocation formula. Yeah, was just about to post this and Eman stole my thunder. Also kinda funny how Schweser pwns the CFAI rep who they talked to and basically call him or her a moron in the explanation. Made me feel proud to be a lifelong Schweser customer.
I’m with those who recommend the CFA example vs. Schweser formulas. CFA example just makes sense. You can easily set up a problem in a table which makes the calculations so much more straightforward. the most beautiful thing is that currency contribution is simply Portfolio’s CC - Benchmark CC, and CC is just Return, domestic - Return, Local weighted across sectors. Sector selection and Security selection are pretty easy to compute once you know what they represent. Schweser formulas suck in comparison and take too much of your CPU capacity:) Highly recommend problem 2 and 5 pages 241, 243, i think if anything, the actual problem on the exam is more likely to presented in this format.
lenchik101 Wrote: ------------------------------------------------------- > I’m with those who recommend the CFA example vs. > Schweser formulas. CFA example just makes sense. > You can easily set up a problem in a table which > makes the calculations so much more > straightforward. the most beautiful thing is that > currency contribution is simply Portfolio’s CC - > Benchmark CC, and CC is just Return, domestic - > Return, Local weighted across sectors. Sector > selection and Security selection are pretty easy > to compute once you know what they represent. > Schweser formulas suck in comparison and take too > much of your CPU capacity:) Highly recommend > problem 2 and 5 pages 241, 243, i think if > anything, the actual problem on the exam is more > likely to presented in this format. Per a note that all of us Schweser guys and gals have in our books, one of the CFAI formulas is wrong (and Schweser called up CFAI and the jackarse who answered the phone gave Mr. Schweser an unacceptable answer, so you’re all still dealing with the incorrect formula). Put that in your pipe and smoke it, Schweser hater… I’m gonna go get a “Schweser 4 life” tattoo on my back now.
skillionaire Wrote: ------------------------------------------------------- > I’m gonna go get a “Schweser 4 life” tattoo on my back now. Me too… getting this printed on the forehead! I think 90% of the charterholders, are exactly ‘there’, due to Schweser.
:)) ha ha skillionaire, you sound very persuasive and i would have almost believed you …about a year ago after my Level I and II success with Schweser. trust me, i have invested several paychecks into their products and i was actually sitting in a tattoo shop when suddenly learned they i flunked the level III (partially because relying exclusively on Schweser and no on the CFA text). well, surprisingly, my sentiment that all-powerful Schweser is not the same product for the Level III sentiment was shared by many with my fortune (or misfortune), and i now swear by CFA texts, having read about 70% of them, done 90% of after chapter problems and can swear on Bible of American constitution that a CFA-Schweser combo is still a better ticket than Schweser alone. But listen, i came in close…very close so still could have gotten that tattoo…
lenchik101 Wrote: ------------------------------------------------------- > :)) ha ha skillionaire, you sound very persuasive > and i would have almost believed you …about a > year ago after my Level I and II success with > Schweser. trust me, i have invested several > paychecks into their products and i was actually > sitting in a tattoo shop when suddenly learned > they i flunked the level III (partially because > relying exclusively on Schweser and no on the CFA > text). well, surprisingly, my sentiment that > all-powerful Schweser is not the same product for > the Level III sentiment was shared by many with my > fortune (or misfortune), and i now swear by CFA > texts, having read about 70% of them, done 90% of > after chapter problems and can swear on Bible of > American constitution that a CFA-Schweser combo is > still a better ticket than Schweser alone. But > listen, i came in close…very close so still > could have gotten that tattoo… Said it before and I’ll say it again - Schweser gives you everything you need to pass the test. What we choose to do with that is on us, as are the results. The people at other levels who blamed their failure on anything but their performance somewhat baffled me. That being said, good luck to you (but I wasn’t kidding above, there is an error in the CFAI formulas).
@skillionaire I was actually thinking about you :), the way you “terminated” the thread on graphical approach to these formulas right after my post there 
So, maybe we’re on the same wavelength @lenchik101 thank you very much! I was kind of stuck on this.
But Lenchik, I don’t disagree with your point - I’m sure the combo of CFAI and Schweser is better than either by themselves. But Schweser and Stalla are study providers, and their job is to make sure people pass, so I’ve got confidence in them (but not Stalla, only Schweser).
lenchik - russian?
skillionaire, i don’t disagree with you and i’m not blaming schweser, i did say “Partially” . i didn’t believe it either (because they are perfect for other levels) but they didn’t do even close to a such a good job as they did for the first two levels. they missed a lot of important information, and this level, honestly , is not as much about popping formulas but more qualitative (compare/contrast bs). Their practice exams are not much in tune with actual exams. Again, this could be the nature of the material, you can’t just capture everything with such a breadth of info. but that’s precisely why reading texts are more important for this level than for anything else. you just get a better overall picture without diving into the minutia, well, at least for me. But i used them both, Sch. is definitely a good review tool.
Schweser actually says that since LOS does not require calculations “this contradiction can probably be ignored for the exam” So we have two(+1) opinions: CFAI curriculum example vs Schweser’s “LOS does not require calculations ==> CFAI example is irrelevant” vs CFAI mock/sample exams (which we have not touched yet in the discussion). Someone in the forum did say about how he/she talked to one guy who was making test questions in the past. So out of, say, 5-10 questions, 1 would be put into the exam and the rest would be shelved/put into sample exams. So, maybe sample exams will shed some more light on this issue.