D
dannyp123
Member
Hi,
I am getting a bit confused with the answers within ASET to the SP5 April 2015 paper, on profit attribution. Some help would be greatly appreciated. Question 5 (ii)b) asks for relative contributions from stock and sector (asset allocation) selection, at asset class level.
From the course notes it states that: F_AA - F_AN = stock selection profits, which makes sense to me. (F_ij being F_sector,stock; A actual, N notional). It also states that F_AN - F_NN then equals your sector selection profits. I am clearly going to be wrong here, but what confuses me is this doesn't seem to hold up in the answers within ASET. Page 10 of the April 2015 solutions:
It gives the formulas used to calculate both stock and sector selection profits for the domestic equities, namely -0.88% and 1.50% respectively.
Now for the stock selection it uses:
0.25*(35.2% - 38.72%) = -0.88%
This makes sense as if you multiply that bracket out it is using F_AA - FAN for domestic equities.
What throws me is I don't have a clue how the formula for the sector selection profit for domestic equities is then derived. it is shown as:
{1} (0.25-0.4)*(38.72% - 48.75%) = 1.50%...
That isn't even close to being F_AN - F_NN (which to my mind would look something like: (0.25*38.72% - 0.4*38.72%)=-5.81% ). So my question is how is that formula derived (formula {1})? And also why is it not F_AN - F_NN??
I would really appreciate knowing a formula that I can apply to all these profit attribution questions, because currently I am winging it a bit (and not well) as it doesn't seem to fit with the formulas in the notes?
Thanks for any help!
Dan
I am getting a bit confused with the answers within ASET to the SP5 April 2015 paper, on profit attribution. Some help would be greatly appreciated. Question 5 (ii)b) asks for relative contributions from stock and sector (asset allocation) selection, at asset class level.
From the course notes it states that: F_AA - F_AN = stock selection profits, which makes sense to me. (F_ij being F_sector,stock; A actual, N notional). It also states that F_AN - F_NN then equals your sector selection profits. I am clearly going to be wrong here, but what confuses me is this doesn't seem to hold up in the answers within ASET. Page 10 of the April 2015 solutions:
It gives the formulas used to calculate both stock and sector selection profits for the domestic equities, namely -0.88% and 1.50% respectively.
Now for the stock selection it uses:
0.25*(35.2% - 38.72%) = -0.88%
This makes sense as if you multiply that bracket out it is using F_AA - FAN for domestic equities.
What throws me is I don't have a clue how the formula for the sector selection profit for domestic equities is then derived. it is shown as:
{1} (0.25-0.4)*(38.72% - 48.75%) = 1.50%...
That isn't even close to being F_AN - F_NN (which to my mind would look something like: (0.25*38.72% - 0.4*38.72%)=-5.81% ). So my question is how is that formula derived (formula {1})? And also why is it not F_AN - F_NN??
I would really appreciate knowing a formula that I can apply to all these profit attribution questions, because currently I am winging it a bit (and not well) as it doesn't seem to fit with the formulas in the notes?
Thanks for any help!
Dan