Total value added return

CFA Level III Portfolio Management
#1

Is total value added return = portfolio returns minus manager’s benchmark (normal portfolio)

OR total value added return = portfolio returns minus asset category benchmark?

#2

I don’t see the term in the indices of any of the 2018 Level III curriculum volumes.

In what context did you see it?

#3

Are you asking for hedge funds, where value added return is (return on portoflio - return on manager’s benchmark)?

#4

I was referring to the page on Type I and Type II risk, and it mentions about value added return. Also, in some of the questions on attribution, value added return was asked to be calculated. I didn’t know if “benchmark” would be manager’s benchmark or fund sponsor’s benchmark?

#5

Going off of Q17 of the Performance Evaluation Qbank, The Total Value Added Return is: total weighted average portfolio return for each sector - total weighted average benchmark return for each sector - trading costs.

#6

Does this help?

True Return = Manager’s Return - Normal Benchmark

Misfit Return = Normal benchmark -Misfit (investor’s) benchmark

Total active return = Manager’s Return - Misfit benchmark

#7

In micro-attribution:

Explained Value Added Return = pure sector allocation + allocation/selection interaction + within-sector selection

Total Value Added Return = explained VA + unexplained VA = portfolio return - benchmark return

The unexplained VA is a plug when the first equation doesn’t add up to total value added.

This what you’re thinking of?

#8

Yes. Benchmark return in your formula is manager’s benchmark return or investor’s benchmark return? The book does not mention, so I have no clue.