Misfit Return vs Misfit Active Return

So I have seen misfit active return a few times in performance evaluation and it is defined as:

misfit active return= managers benchmark - investors benchmark

In the context of macro attribution it seems to be also called misfit risk or style bias. However, the definition here does not seem to have anything to do with the previous one, that is there is no investor benchmark given. And the term misfit risk only appears at the very bottom of that paragraph in the book as a sidenote, so it seems to me that the term misfit risk here is 1) not the same as above 2) and not very fitting.

It is defined as the incremental return added by over/underweighting styles (e.g.value vs. growth)

Can someone confirm

The misfit return would be regarding the advisor’s benchmarks versus the benchmark used for the fund.

Macro attribution

  1. Net contributions (contributions-withdrawls. aren’t investment related)

  2. Rf returns - if the funds were invested at the risk free rate

3. Asset categories - if the funds were invested based on the fund’s benchmark

4. Benchmarks - if the funds were invested based on the adviser’s specific benchmarks less the returns from the fund’s benchmark (incremental)

  1. Investment managers - Returns of the investment managers over their specific benchmark

  2. Plug/allocation effects

Does that help?

Not quite. First of all, I thought 3 and 4 was something else, namely:

  1. Incremental value added by choosing asset categories anything different than 100% Risk free. Say 60/40 equity and fixed income

  2. weight associated with that asset class (say equity) * weight of that style (say value) * (style return-equity return)

But that was not my question.

My question was, 4 appears to be called misfit risk in the curriculum AND in one of the topic test questions on the CFAI site. But they also called it style return. So I am just trying to confirm, that:

  1. this has nothing to do with the misfit return we learned about in the other chapters

  2. the term misfit is a bit misleading and style return would be better.

Hello, was the term Misfit Return and Misfit Active Risk removed from the 2021 Level 3 exam? I did not see it in the official CFA materials. Thank you.

There is only “misfit” active return now (in the reading Portfolio Performance Evaluation), which is also the style return