Answer Happy

You perform a portfolio attribution analysis on a balanced fund
using last year’s returns in the following table. Column
(1) includes the actual return of each asset class in the fund.
Column (2) shows the proportion of each asset class in the fund.
Column (3) gives the return on the benchmark index of each asset
class. Column (4) gives the proportion of each asset class in the
benchmark portfolio.
(1) Calculate the balanced fund’s return last
year. What was his abnormal performance?
[4 marks]
(2) What was the contribution of asset allocation to the
manager’s relative performance?
[5 marks]
(3) What was the contribution of security selection to the
manager’s relative performance?
[5 marks]
(4) Discuss how using benchmark-adjusted return in step
(3) to measure fund managers’ ability for security
selection may cause the low-beta anomaly? Explain. [6
marks]
(1) Actual Return 25% -5% 0.5% Equity Bonds Cash (2) Actual Weight 0.70 0.20 0.10 (3) Index Return 20% -10% 0.5% (4) Benchmark Weight 0.60 0.30 0.10