You work for a private wealth management firm that follows an “external investment” model, whereby it decides which outs
Posted: Sun Jul 03, 2022 12:52 pm
You work for a private wealth management firm that follows an“external investment” model, whereby it decides which outsidemanagers it should recommend to clients. One mutual fund that is acandidate for inclusion on your Premier Recommended List ofapproved managers is Active Fund (AFNDX), an actively managed stockportfolio benchmarked to the Standard & Poor’s 500 (SPX) Index.You have been asked to perform an evaluation of AFNDX’s pastinvestment performance, using a sample of monthly returns on thefollowing positions: (1) AFNDX portfolio, (2) SPX Index, (3) U.S.Treasury bills, and (4) the three primary Fama–French risk factors(excess market, SMB, and HML). These data are listed below.
Sharpe ratio for AFNDX:
Sharpe ratio for SPX:
The value indicates that the manager generateda -Select-higherlowerItem 4 return than what was expectedgiven the portfolio’s risk level.
The fund is only slightly -Select-morelessItem6 volatile than the market.
It is -Select-higherlowerItem 8 than 0.50, which meansthat the fund’s performance -Select-isis notItem9 statistically related to the benchmark.
Treynor ratio for AFNDX:
Treynor ratio for SPX:
The portfolio has a -Select-higherlowerItem 12 riskpremium per unit of risk than the market portfolio as indicated bythe Sharpe ratio. The portfolio plots -Select-abovebelowItem13 the SML, indicating -Select-superiorinferiorItem14 risk-adjusted performance, as its T valueis -Select-higherlowerItem 15 than the marketportfolio’s.
Tracking error on a monthly basis:
Tracking error on an annualized basis:
The value of tracking error indicates thatthe -Select-activestructuredpassiveItem 18 manager’sinvestment style is used because theannualized TE is -Select-less than1.0between 1.0 and 3.0over 3.0Item 19 .
Information ratio on a monthly basis:
Information ratio on an annualized basis:
The manager’s investment prowess relative to the general equitymarket is considered as -Select-badgoodexceptionalItem22 because theannualized IR is -Select-less than0.5greater than or equal to 0.5 and less than 1.0equal to 1.0Item23 .
Sharpe ratio for AFNDX:
Sharpe ratio for SPX:
The value indicates that the manager generateda -Select-higherlowerItem 4 return than what was expectedgiven the portfolio’s risk level.
The fund is only slightly -Select-morelessItem6 volatile than the market.
It is -Select-higherlowerItem 8 than 0.50, which meansthat the fund’s performance -Select-isis notItem9 statistically related to the benchmark.
Treynor ratio for AFNDX:
Treynor ratio for SPX:
The portfolio has a -Select-higherlowerItem 12 riskpremium per unit of risk than the market portfolio as indicated bythe Sharpe ratio. The portfolio plots -Select-abovebelowItem13 the SML, indicating -Select-superiorinferiorItem14 risk-adjusted performance, as its T valueis -Select-higherlowerItem 15 than the marketportfolio’s.
Tracking error on a monthly basis:
Tracking error on an annualized basis:
The value of tracking error indicates thatthe -Select-activestructuredpassiveItem 18 manager’sinvestment style is used because theannualized TE is -Select-less than1.0between 1.0 and 3.0over 3.0Item 19 .
Information ratio on a monthly basis:
Information ratio on an annualized basis:
The manager’s investment prowess relative to the general equitymarket is considered as -Select-badgoodexceptionalItem22 because theannualized IR is -Select-less than0.5greater than or equal to 0.5 and less than 1.0equal to 1.0Item23 .