CFAI Volume 6 pp 241 question 2 c “Attribute the performance relative to the benchmark (World Index) to the various investment decisions” In the Currency Allocation calculation it states that: “0.0194 is the dollar return on the European index minus the Euro return on the index” Dollar return on European index = Local Currency Index Return from the table over the page (-5%) Where is the Euro return on the index? Shouldn’t this be the USD return on the European index? I dont see a value of -0.0694 anywhere e.g. -0.05 - (-0.0694) = 0.0194 Even if it meant the EUR currency return that is 0.98/1 = +2%
see exhibit 4 pg 210. ask back here if it is still not clear
great, got it now thanks! I just didn’t understand the question properley. Hopefully they’re not going to throw anything so calculation intensive at us in the exam? Lots of room for error 
i just got finished with this section of EOC questions and i ditto that remark algo- it’s not that it’s so hard, but it’s a lot all in one shot. q 5 was good, did it all, but man that took some time.
Yep I just did Q5 aswell…great way to spend Sat afternoon! Why oh why do they give you this stuff & GIPS right at the end?
elcfa, CFAI Text V6 Is there a clear borderline between Total-Return Decomposition (P.208 ) & Performance Attribution (P.211) ? Thanks in advance !
AMC Wrote: ------------------------------------------------------- > elcfa, > > CFAI Text V6 Is there a clear borderline between > Total-Return Decomposition (P.208 > ) & Performance Attribution (P.211) ? > > Thanks in advance ! Not sure what you mean, but Total-Return Decomposition just splits the return into cap gain + yield + currency --> it does not tell you whether the performance is due to the skills of the mgr or because of strong market), while attribution splits the local cap gain and currency further into more components, one of them is benchmark so you can clearly where the cap gain and currency gain comes from. Hope it is clearer.
elcfa, Sorry, I am so stupid. But is it that Performance Attribution is relative to some benchmarks while Total-Return Decomposition does not use any benchmark ?
^ yes.
AMC Wrote: -------------- > But is it that Performance Attribution is relative > to some benchmarks while Total-Return > Decomposition does not use any benchmark ? Yes, if you mean performance Attribution also shows benchmarks as a component thus facilitate the comparison. Both breaks down the same return: total return, Performance Attribution has much more details than the other, and thus is used to judge the performance of the manager.
I am confused by statements in Schweser’s note and CFAI text which stated : If Yield is assumed to be 0 in both Schweser’s note & CFAI text. Decomposition : Total Return = Sigma of market return + Sigma of Security Selection Effect + Sigma of Currency Effect While in CFAI text, it stated : Decomposition : Total Return = Capital Gain component + Currency component Is it that “Sigma of market return + Sigma of Security Selection Effect” in Schweser’s note = “Capital Gain component” in CFAI text ? Sigma of Currency Effect = Currency component ?
They are talking about the same thing, but in different details. CFAI later explains that: Capital Gain component = Market Return component + Security Selection component Market Return component = Portfolio Weights X index return in local currency Security Selection component = Portofolio Weights X (Portfolio return in local currency - index return in local currency) Then, CFAI proceeds to presents another step of performance attribution of the portfolio relative to the international benchmark. Basically the total portfolio return is decomposed into below parts: 1. international benchmark return (use benchmark weights, benchmark return in base currency) 2. market allocation (use both Benchmark and portfolio weights, benchmark return in local currency) 3. currency allocation (use both benchmark and portfolio weights, both portfolio and benchmark returns in both base and local currencies) 4. security selection (use portfolio weights, benchmark and portfolio returns in local currency) 5. yield They are just different ways to slice and dice it.
elcfa Wrote: ------------------------------------------------------- > AMC Wrote: > -------------- > > But is it that Performance Attribution is > relative > > to some benchmarks while Total-Return > > Decomposition does not use any benchmark ? > > Yes, if you mean performance Attribution also > shows benchmarks as a component thus facilitate > the comparison. > > Both breaks down the same return: total return, > Performance Attribution has much more details than > the other, and thus is used to judge the > performance of the manager. No, performance attribution shows the sources of ACTIVE return, while decomposition shows the sources of TOTAL return.
darkstar Wrote: ------------------------------------------------------- > No, performance attribution shows the sources of > ACTIVE return, while decomposition shows the > sources of TOTAL return. Not 100% sure what you mean or you disagree with, but if you don’t agree with happyking02’s post above who has put more details and is consistent with what I wrote earlier then please provide more details.
happyking02 Wrote: ------------------------------------------------------- > They are talking about the same thing, but in different details. CFAI later explains that: > Capital Gain component = Market Return component + Security Selection component > Market Return component = Portfolio Weights X index return in local currency > Security Selection component = Portofolio Weights X (Portfolio return in local currency - indexreturn in local currency) happyking02, Would you please kindly where I can find these statements in CFAI text (Page ? Vol 6, R47) ?
darkstar, What are the sources of “Active Return” and whar are the sources of Total Return ? It seems that the statements in Schweser’s note and CFAI text are different as I mentioned above.
happyking02 & darkstar, Would you please response to my above-posted messages ? Thanks !
AMC, Page 210 Vol 6, R47: talks about the total return breakdown: Capital Gain component = Market Return component + Security Selection component Market Return component = Portfolio Weights X index return in local currency Security Selection component = Portofolio Weights X (Portfolio return in local currency - indexreturn in local currency) Page 211 Vol 6, R47: talks about the active return breakdown: (2,3,4 are all relative to international benchmark, i.e., active return) 1. international benchmark return (use benchmark weights, benchmark return in base currency) 2. market allocation (use both Benchmark and portfolio weights, benchmark return in local currency) 3. currency allocation (use both benchmark and portfolio weights, both portfolio and benchmark returns in both base and local currencies) 4. security selection (use portfolio weights, benchmark and portfolio returns in local currency) 5. yield
I think happyking02 has summed it up nicely.
happyking02, TKVM for your advice ! So the Capital Gain component is the “Rate of Return in Local Currency (3) " and Market Return component is the “Market Index (5)” and Security Selection component is the Security Selection (6)” in Exhibit 3 on P.210, right ? Now I understand that Schweser’s note futher decompose the Capital Gain component into (Market Return component + Security Selection component) and Security Selection component is incorporated in the “Total-Return Decomposition” rather than the “Performance Attribution”. This makes me confused. And this why I was asking if there is a clear borderline between Total-Return Decomposition (P.208) & Performance Attribution (P.211) ? TKVM !