GPE - Reading 47 - EOC #5

CFA Level III Portfolio Management
#1

Part A) calculate the local currency return for the portfolio

ans: Only shows local market return but not for the portfolio??

#2

Grt, so Market component is different than Market Allocation

Currency contribution is different than currency allocation

Security selection is different than security allocation?

#3

Yeps :-). I am actually thinking of leaving Global Perfomance Attribution to Almighty!

#4

i still didnt look at performance attribution =/ putting it off til…maybe after the exam? lol

#5

Haven’t looked at it yet? Seriously you’ll want to get on that, there’s a lot of material there and it’s very testable

#6

GPE in a nutshell

currency contribution= difference between the return in $ - return in local currency

currency allocation= differnece between currency contribution in portfolio - currency contribution in bench mark

secruity allocation= (weight of country in portfolio x ( return of county in portfolio - return in benchmark))

market allocation= (weight of country in portfolio - weight of country in benchmark) x return of country in local currency in benchmark

Must sum market allocation and currency allocation for different countries.

Two period return for any allocation is

Ra1 x (1=Rb2) +Ra2 x(1+Rp1)

Tw period return cannot be calculated by

  1. Adding allocations across periods

  2. Geometrically linking allocations across periods or

  3. Not sure about this one but something about using weights of the allocation in each period . (must vheck this one)

Methods of risk evaluation,

Standard deviation, active risk, Sharpe Ratio, Information Ratio

And that is it. Dont think I missed much

#7

Thanks for the reminder guys. I am having to rely on brute-force memorization to get a handle on the formulas in these sections.

#8

Jus to add:

  1. a) Market component/Market return = Sum Wj,p x Rj,b,l

b) Market Allocation Contribution = Sum (Wj,p - Wj,b) x Rj,b,l---------this equation changes in Multi period calculation thus called as

c) Market Allocation Effect = Sum (Wj,p - Wj,b) x (Rj,b,l - Rb,l)…similar to pure sector allocation in domestic performance evaluation

  1. a)Currency component/Currency contribution = Sum Wj,p (Rj,p,d - Rj,b,l)------> Wj,p - latest weights in portfolio calculated by converting portfolio values in the end at domestic (dollar value)

b) Currency Allocation = Sum (Wj,p x Cj,p - Wj,b x Cj,b)----->

here Cj,p = (R j,p,d - Rj,p,l) & Cj,b = (R j,b,d - R j,d,l)

  1. Security Selection = Sum Wj,p (R j,p,l - R j,b, l)-------->equation changes with Wj,b in domestic micro performance attribution thus called within-sector selection

I don’t what & why am writing…lol

edit: Also I am sure to forget during the heat of the exam.

#9

I think since we can’t weight country performance when returns are on local currency they haven’t done it. Since currency effect is not there it is misleading to calculate (present) portfolio return in local currency.