GIPS: Cash allocation for carve-outs

CFA Level III
#1

Let’s say a portfolio has strategic mix of 80% equity and 20% bond, and at the moment it has got 81% equity, 15% bond and 4% cash. If you are to carve out the equity portion to an equity composite, under “Strategic Asset Allocation” method, how much of cash should be allocated to equity? - sticky

#2

0.81/0.96 * Cash component. I think there are multiple ways to do this.

#3

Is this the “strategic asset allocation” method? If the portfolio is having 79% equity, 17% bond and 4% cash at the moment, I know that it should be ((80-79)/4 ) * $cash Question is: are we having -ve cash allocation if equity goes up to 81%? - sticky CareerChange Wrote: ------------------------------------------------------- > 0.81/0.96 * Cash component. I think there are > multiple ways to do this.

#4

found a similar question raised now so I am bring this up again. - sticky

#5

I saw an example somewhere, can’t remember. a portfolio has strategic mix of 50% equity and 50% bond, and at the moment it has got 45% equity, 45% bond and 10% cash. 5% cash should be allocated to equity as per the strategic mix. Here we don’t use any percentage calculation.

#6

ggb Wrote: ------------------------------------------------------- > I saw an example somewhere, can’t remember. > > a portfolio has strategic mix of 50% equity and > 50% bond, and at the moment it has got 45% equity, > 45% bond and 10% cash. > > 5% cash should be allocated to equity as per the > strategic mix. Here we don’t use any percentage > calculation. This example is fine but not related to what I am asking :slight_smile: In your case, what should cash allocation for equity be if the current allocation is 30% equity, 60% bond and 10% cash? - sticky

#7

difference between strategic and current portfolio allocation is cash: here the difference is negative, so could I say the equity portfolio has negative cash allocation or it is levered?

#8

I guess the question will be clear enough to indicate if we should use SAA or Current Allocations.

#9

CareerChange Wrote: ------------------------------------------------------- > I guess the question will be clear enough to > indicate if we should use SAA or Current > Allocations. Let’s say SAA for this case? - sticky

#10

Is it that we are arguing hypotheticals? If the operational asset allocation is so far from SAA, then there are bigger problems than the carve out.

#11

CFAAtlanta Wrote: ------------------------------------------------------- > Is it that we are arguing hypotheticals? If the > operational asset allocation is so far from SAA, > then there are bigger problems than the carve out. So you mean you won’t expect a question like this in the exam? - sticky

#12

sticky Wrote: ------------------------------------------------------- > CFAAtlanta Wrote: > -------------------------------------------------- > ----- > > Is it that we are arguing hypotheticals? If the > > operational asset allocation is so far from > SAA, > > then there are bigger problems than the carve > out. > > So you mean you won’t expect a question like this > in the exam? > > - sticky I really don’t know - but except for that one simple example in Schweser (cited above), I have seen nothing else.