2011 CFAI EoC page 178 #11 (A)

The answer says that the calculation will be using the Russel 1000 rather than the normal benchmark that more closely resembles the manager’s style, which is why the active risk is 6.1% and not 6.0%.

Did they mean that it will be using the Russel 3000? The question says that “the overall equity porfolio’s benchmark is the Russel 3000” … and it specifically lists the normal benchmark as “cash with russel 1000 overlay”

Checked errata saw nothing.

Oh, and Volume 4.

that is the Stephanie Whitmore question?

If so - it is on 279 Vol 4 in 2012…

Total cluster there… don’t know why i typed that. It is still 279 even on mine. My bad, good catch rainman.

It’s most likely a typo. It’s either “Russell 1000 overlay”, “Russell 3000”.

I would think it would have to be the 3000, the 1000 is the normal benchmark… not sure what the whole cash thing is about.

The cash may come from the “short”, and it can be invested in treasuries, I think.

What cash? I got the impression the portfolio was an enhanced index with the Russel 1000 as the index and the long-short as the portable alpha

It could just long the Russell 1000 index futures, which is an overlay.

Also they are calculating Misfit risk by following eq

Active risk^2 + misfit risk^2 = total risk^2

here they are substituting Active risk = 6 whereas in ques it explicitly says “The active risk of this portfolio is 6.1 percent.”??

6 is the active risk relative to normal benchmark (from the table).


I’m not seeing a consensus on what the benchmark that is incorrectly used in the equation should be? Does anybody disagree with me that they meant to refer to the 3000 since the 1000 is the normal portfolio? That and the question explicitly states that the 3000 is the “overall benchmark” e.g. “investors benchmark” rather than “managers benchmark” (not sure if i got the terminologies right but you get the idea).

It should be “Russell 3000”, IMHO. The confusion comes from two places: Russell 1000(a typo, I think) and the active risk of the portfolio(it’s the “total” active risk). It does not explicitly use terms like “true” active risk.