I think so far, we are all weak and all beaten down…yet we all have the monster on June 7th.
AnalystForum vs. Goliath.
I was meaning to reply to this yesterday, here is my take: Allocation Actual Return Benchmark Return Domestic Equity 70% 6.50% 6.25% Mgr A Large-Cap 60% 5.20% 4.90% Mgr B Small-Cap 40% 7.50% 7.85% Domestic FI 30% 5.60% 5.25% Mgr E Government 45% 4.50% 4.25% Mgr F Corportate 55% 5.70% 5.80% Given rfr=3% Asset Catergory Contribution = wi*(Rci - Rf) Benchmark Contribution = wj*wj*(Rbi - Rci) Investment Manager Contribution = wi*wj*(Rai - Rci) where wi = weight of asset class (e.g., Domestic Euity = 70%) wj = weight of manager within asset class (e.g., Manager A Large-Cap = 60%) Rci = bencmark return on the asset class (e.g., Domestic Equity = 6.25%) Rbi = manager’s benchmark return within asset class (e.g., Mgr A Large-Cap = 4.90%) Rai = manager’s actual return within asset class (e.g., Mgr A Large-Cap = 5.20%) Asset Catergory Contribution = (0.7)(6.25-3) + (0.3)(5.25-3) Benchmark Contribution = (0.7*0.6)(4.90-6.25) + (0.7*0.4)(7.85-6.25) + (0.3*0.45)(4.25-5.25) + (0.3*0.55)(5.80-5.25) Investment Manager Contribution = (0.7*0.6)(5.20-4.90) + (0.7*0.4)(7.50-7.85) + (0.3*0.45)(4.50-4.25) + (0.3*0.55)(5.70-5.80) Asset category contribution shows how asset class benchmark performed relative to risk-free rate. Benchmark contribution (i.e., misfit return) compares how manager’s benchmark performed relative to asset class benchmark. Investment manager contribution (i.e., active return) compares manager’s actual return to manager’s benchmark return.
> Investment Manager Contribution = wi*wj*(Rai - > Rci) > > where > > wi = weight of asset class (e.g., Domestic Euity = > 70%) > wj = weight of manager within asset class (e.g., > Manager A Large-Cap = 60%) > Rci = bencmark return on the asset class (e.g., > Domestic Equity = 6.25%) > Rbi = manager’s benchmark return within asset > class (e.g., Mgr A Large-Cap = 4.90%) > Rai = manager’s actual return within asset class > (e.g., Mgr A Large-Cap = 5.20%) > I think you messed up “Rci” part. It should be Rbi. So, Investment Manager Contribution = wi*wj*(Rai - Rbi). Is it right?
Thanks for coming up with one, WS… one basic question - shouldn’t the return on the asset classes equate to the weighted average of the managers’ performance. E.g., Dom Equity Actual Return = (5.2 x 0.6) + (7.5 x 0.4) = 6.12%? Rather than 6.5%.
volkovv, good one (very helpful) except for explanation in the end Asset Category is broad based bench, thus Asset category contribution shows how BROAD BASED BENCH (SP500) benchmark performed relative to risk-free rate. Bench as defined here is style bench, thus Benchmark contribution (i.e., misfit return) compares how manager’s benchmark performed relative to BROAD BASED BENCH (asset CATEGORY benchmark) Active return seems okay. Am I correct?