Two questions:
On 4C, why is Roy’s Safety-First Criterion not an option as one of the three different measures? All of the components (return, minimum acceptable return, standard deviation) are provided.
On 6B, why is footnote 7 not non-compliant? It reads, “All accounts of at least $5,000,000 are included in the composite as of the first quarter under management.” I thought all accounts that fit a composite should be included, not just ones over a certain minimum dollar amount.
You are in luck, i did this today. I think it is an error as i also used RSF, but not ROMAD (couldnt remember if it was MAR or RF that you subtracted so i stuck with RSF).
On 6B i stared at it for a second, but I do believe you are allowed to specify minimum account sizes to be included so long as you are consistent in doing so, on a composite by composite basis. I didn’t check the text to verify that, but that is what i remember reading.
doesn’t this sound like an “except for” condition: as of the first quarter under management
mark: the only thing i can think of of whay roy’s was not an answer is that it is introduced in a different reading, and schweser simply forgot about it.
also, since you are saying you did this exam today, im wondering what your thoughts were? i thought it was a fairly strange test in terms of the questions, and at times i felt there was so much writing and it was just not very representative of the real thing.
cpk: i think our point is on the $5M–there is no rule that says if an account is below $5M you can exclude it from the composite, right?
It reads, “All accounts of at least $5,000,000 are included in the composite as of the first quarter under management.”
if the statement has instead read:
It reads, “All accounts of at least $5,000,000 are included in the composite"
that would have been more compliant.
Doesn’t the first statement read like an “except for clause”.
On 4C the only thing I can think of is that RSF is a measure of shortfall risk, and not a risk adjusted return. I also thought of Roy’s at first, but then went with the ROMAD calc because I thought it was more appropriate to the question.
On 6B as long as the definition of the composite specifies that there is a minimum account level to be included it is ok to exclude accounts below that level.
the clause seems to read too much to me like "if the account had > 5 Mill as of first quarter in Management" it should be included. Not like it should - that if it had \> 5 Mill period - and matched the style of the composite and the mandate - it should be included.
I think you may be right on 4C.
On 6B, I don’t know if you’re right, because we know that all fee paying discretionary accounts must be included in a composite. If you could only include accounts of a certain minimum value, then these two facts would conflict.
I will find the text later, but im pretty confident on this one. Yes, they all must be included, however that is still subject to the minimum asset value limitation.
My thinking on this is that you would need two composites in this case. One for accounts above the threshhold, and one for accounts below.
I believe the reasoning behind using an asset threshhold is because some accounts need a specific asset level to invest in certain securities. I think of Fixed Income securities that have what’s called a min-piece threshhold to purchase. It is basically the minimum number of bonds you can buy to take a position in the issue. each issue is allowed to set their own min-piece which can range from a typical 1,000 up to 200,000 (maybe more, but this is the highest I’ve seen). the accounts that cannot regularly purchase into the higher min piece issues might be disadvantaged if they were placed in the composite composed of accounts with higher asset levels. In this case, to treat all accounts in the composite fairly, and to get an accurate representation of returns to present to clients who may want to invest in the strategy, you would need 2 composites separated by some asset level break defined by the firm.
3.A.9 If the FIRM sets a minimum asset level for PORTFOLIOS to be included in a COMPOSITE, the FIRM MUST NOT include PORTFOLIOS below the minimum asset level in that COMPOSITE. Any changes to a COMPOSITE-specific minimum asset level MUST NOT be applied retroactively.
very helpful, thank you