2009 Mock Mult Choice Exam - Attribution

CFA Level III
#1

Hey All,

I’m looking at the 2009 mult choice mock exam, questions 25, 26, 27. I’m seeing a few attribution formulas that I haven’t seen before and I’m wondering if anyone can let me know if they’re been removed from the curriculum?

The questions reference “the incremental return contribution attributed to the Asset Category”. It’s calculated as: Benchmark Weight * (Benchmark Return - Risk Free Rate)

They questions also reference “the incremental return contribution attributed to misfit return” and Èthe incremental return contribution attributed to the investment managersÈ.

If anyone can let me know if these have been removed from the curriculum that would be appreciated! Thanks!

#2

So, those mocks are just questions pulled from the Topic Tests. You’ll find the one you’re referring to in there currently, listed as OKelly.

This is Macro Performance Attribution, and yes it’s still in the curriculum including the formulas. Whether they’ll actually test these formulas on the exam or not is questionable though (in my opinion).

#3

Isn’t this return to Benchmark category, not Asset category which is completely passive allocation?

and formula should be Asset category weight * (Asset category - RFR)?

Could someone confirm?

Benchmark incremental return should be return due to style thus misfit return.

Furthermore, I would like if someone can confirm whether is Return on Asset category in Macro strategy approach only completely passive return while return to Benchmark isn’t completely passive return?

#4

Asset Category is the incremental return from passive pure index replication. It’s the sum of (Asset Category Weight) x (Asset Category BM Return - Risk Free Rate). Asset Category benchmarks would be those like the S&P 500 for equities and Barclay’s Agg for bonds (broad market).

Benchmarks is the incremental return due to style differences (misfit return) between the Asset Manager’s benchmark and the Asset Category benchmark. It’s the sum of (Asset Category Weight) x (Manager Weight) x (Manager BM Return - Asset Category BM Return). Manager benchmarks here would be style indexes like the Russell 1000 Value or Growth (or a custom bench of some kind I’d imagine).

Asset Managers is the incremental return from active security selections. It’s the sum of (Asset Category Weight) x (Manager Weight) x (Manager Actual Return - Manager BM Return).

For the record, I had to check my notes to get the above right. I still don’t have this down pat, and I’m not sure I will, but if this happens to show up on the exam and they lay out the data in tables like in the OKelly Topic Test I should be able to work it out lol.

#5

Thanks JayWill. I’m thinking I’ll learn the Asset Category formula: (Asset Category Weight) x (Asset Category BM Return - Risk Free Rate)

I may skip the other two depending on time. Feels unlikely that they’ll be on the exam.

#6

OK, thanks. It’s clear. It is often asked to determine passive return and only Asset Category return is pure passive return.

Thus cumulative passive return is RFR return + Asset category return.

It’s tip to remember those fancy equations that each further category is incremental return times weight in asset

Wasset * (Current category - Previous category)

for active allocation also should be weighted by manager allocation.

#7

Yeah no problem. And yes I think if we see something about this it’ll be about evaluating the components not calculating them. If I recall correctly, there was a recent AM exam where they were clearly seeing if you knew where style bias and active return came from in the analysis. Then there’s the big picture Macro vs Micro, where the former is used at the overall fund sponsor level and the latter at the individual manager level. These kind of things will more likely be tested I’d think. Still, the formulas probably help put it all together I guess.

#8

OK. See Ya tomorrow…