i swear i’m going bananas. when calculating the returns attributable to within-sector (i.e. security selection) do I use the benchmark weights or the portfolio weights? maybe i’m just losing my mind but i feel like i’ve seen it both ways across qbank, secret sauce, CFAI, and schweser notes.
Portfolio Weight of Sector (Portfolio return of Sector - BM return for that Sector)
mcap11 Wrote: ------------------------------------------------------- > Portfolio Weight of Sector (Portfolio return of > Sector - BM return for that Sector) I believe it’s benchmark weight.
its benchmark weight
You are correct - too confusing! Disregard my previous post!!! BM Weight of Sector (Portfolio return of Sector - BM return for that Sector)
Think of it this way. Within sector = differences in stocks return with the same BM Sector weight = differences in weights with same BM return Sector/Security Selection = Differences in stocks AND differences in weights - the benchmark return
always remember peanut_butter
The reason you are confused is because it is presented two different ways. In normal decomp, it is benchmark in GLOBAL decomp, it is portfolio weight. The formula is exactly the same other than this.
markCFAIL Wrote: ------------------------------------------------------- > The reason you are confused is because it is > presented two different ways. > > In normal decomp, it is benchmark > > in GLOBAL decomp, it is portfolio weight. > > The formula is exactly the same other than this. i think you are correct sir - now why the hell would it be different? whatever mutant came up with this deserves to be strangled in front of his own children
the most annoying thing is that even though i stone cold memorized a formula that is a page wide when written down and can recite it from memory on command like fkn rainman, I still usually miss the problems related to this the way they ask them. ugh.
The way I understood performance attribution (not global) and have been able to memorise and retain so far is as follows. Imagine two rectangles: one inside another as in my lame attempt at drawing below On the horizontal side you have the weights and returns on the vertical sides. Rpi ________________ l l l l l 3 l Rbi l ____________ l l 2 l l l l l l l 1 l l l l l l l ---------l--------------------- Wbi Wpi Area of region 1 = (Wpi - Wbi) x Rbi This is your pure sector selection for sector i. Note you are gaining active return from deviating from the BM weight only not the return. So you use Rbi. caveat: when you sum it across sectors (i = 1 to n), it doesn’t matter whether you use Rbi or (Rbi - Rb). However, if asked for an individual sector don’t forget to modify the above as (Wpi - Wbi) x (Rbi - Rb) Area of region 2 = Wbi x (Rpi - Rbi) This is your within sector security selection since you are sticking with the BM weight but getting active return by selecting superior securities within the secor. Area of region 3 = (Wpi - Wbi) x (Rpi - Rbi) This is your sector/security interaction term which represents the combined effects of varying both the weights and the composition within the weight. Hope this helps!!! CFASniper
Oops my drawing got all messed up but hope you get the idea
benchmark within, 5% of the test, dont pull your hair out
hey wake, how do you know its only 5%? its within portfolio management which is 45-55% is there a more specific weighting scheme out there?
he is saying there will be no more than 1 item set on it, which is likely true. In actuality, they might ask 1-2 questions on it specifically.
markCFAIL Wrote: ------------------------------------------------------- > The reason you are confused is because it is > presented two different ways. > > In normal decomp, it is benchmark > > in GLOBAL decomp, it is portfolio weight. > > The formula is exactly the same other than this. This. These stupid equations drove me nuts for weeks.
SS17 is way too detailed oriented for only 5% of the exam, especially reading 47 where we have to calculate the currency contribution, cap gains, etc Might have to just hope for some lucky guesses on this part of the exam
Rj=pj+dj+cj or return = capital gain component + dividend yield component + currency component Just slice and dice, …, as long as left=right.
Hi CFA Sniper. I didnt get your graph… but I was wondering about the caveat:
"caveat: when you sum it across sectors (i = 1 to n), it doesn’t matter whether you use Rbi or (Rbi - Rb). However, if asked for an individual sector don’t forget to modify the above as
(Wpi - Wbi) x (Rbi - Rb)"
Why you say they are the same when you sum it all?. I am asking you because there is something that is driving me crazy. I think of Pure Sector Allocation as the return attribution of the difference in the actual portfolio weights vs the Benchmark’s. Nevertheless, the formula states: Sum (Wp,j - Wb,j)(Rb,j - Rb(overall benchmark))
I am wondering why do we have to subtract the Rb (overall benchmark)??. Aren’t we supposed to capture the difference in weights by multiplying our “active weights” with the benchmark return, instead of the difference between the benchmark return and the overall benchmark?
Thanks