global Performance--Reading 44 question 11 page 109

CFA Level III
#1

Question # 11 1)If inter. investment managers, as a group, beat some national market index, what does it tell us about performance of local investment managers? Answer: If inter investors as a group beat some national index, it must be that local investors as a group underperform the index 2)Whould you reach the same conclusion if inter managers underperform as a group relative to some local market index? Answer: No. Because of costs, both international and local investors can as a group underperform local index ********************************************************** Can you explain the logic in this answers

#2

I can understand 2) but i am confused #1

#3

Investment manager cannot get the same performance as the index even when he replicated the index by 100%. That’s because investment manager incurres transaction costs (and index return is calculated w/o taking t-costs into account). Therefore, performance of all investment managers as a group should also be remaining must underperform (so that total performance of all investment managers < national index) If we’re given that part of managers underperformed -> remaining can either underperform too or outperform (it depends on by how much the first group of managers underperformed).

#4

this is wierd coz in ans 1) you would never know if the local currency appreciated ( against domestic currency) or not coz if it did then the performance of the int.investment manager would be enhanced…so you cant kill local investment managers who have no control over/ exposure to currency ???

#5

am i right or i m just to tired tonite to study?? :frowning:

#6

It seems that they ignore currency changes in the answer. I.e. if you start thinking in terms of LC appreciating/depreciating, I don’t think their answer still holds.

#7

hey tanyusha …u frm India?

#8

i am still very confused

#9

equity_research_nds, no. What made you think so?

#10

Thanks tanyusha! this helps a lot!

#11

nothing!!!

#12

she is from russia probably

#13

>she is from russia probably I am. Originally.

#14

Figures, tanyusha is a more gentle way to say Tanya, that is all that i know