A06Q5i please help.....3 problems

[uktous]

please help.....I have no idea to solve the following problems

Problems1, 2
When I look at the exam report, there are 3 columns which I don't understand how to work out.
1) the 5th column - Curr
2) the 7th column - Alt Rtn
3) the 8th column - stock

Could you please tell me how to work out those column?
and what those figure represent, eg what is Alt Rtn?


Problem3
I also have an other question...
why there are 2 columns of stock?

 

[GraemeC]

Two different methodologies

The currency contribution is the deviation of actual currency specific performance from benchmark average currency contribution multiplied by (the opening weights minus the benchmark weights).

The other two columns are I believe slightly different methods of calculating the returns using average money weights rather than opening weights. The sneaky part is that the first Alt Rtn entry should be 24% not 0.24. This I believe is an alternative solution set.

 

[uktous]

The currency contribution is the deviation of actual currency specific performance from benchmark average currency contribution multiplied by (the opening weights minus the benchmark weights).

The other two columns are I believe slightly different methods of calculating the returns using average money weights rather than opening weights. The sneaky part is that the first Alt Rtn entry should be 24% not 0.24. This I believe is an alternative solution set.

hi,

thank you very much for your reply

is it possible to show me, by a numerical emaple using any 1 row, about how to work out the "currency contribution"?

also i hope you could show me how to work out the Alt Rtn stock entry (column7,8) as well, by a numerical emaple using any 1 row

 

[Genesiss]

hi,

thank you very much for your reply

is it possible to show me, by a numerical emaple using any 1 row, about how to work out the "currency contribution"?

also i hope you could show me how to work out the Alt Rtn stock entry (column7,8) as well, by a numerical emaple using any 1 row

If you don't mind Please do for the whole of the US full attribution analysis i.e. all the compnents of row 1

 

[uktous]

please help.....I have no idea to solve the following problems

Problems1, 2
When I look at the exam report, there are 3 columns which I don't understand how to work out.
1) the 5th column - Curr
2) the 7th column - Alt Rtn
3) the 8th column - stock

Could you please tell me how to work out those column?
and what those figure represent, eg what is Alt Rtn?


Problem3
I also have an other question...
why there are 2 columns of stock?

Thank you !
I understand how to work out the 5th column now! And I just ignored the 7th and the 8th columns.
I got another question.
It is about the outperformance of the fund which is equal to 6.58% = 22.81% - 16.23%
According to the exam report, it is equal to the stock selection added + asset allocation added + currency added = 1.71% + 4.46% + 0.0085 x 4.86% = 6.61131%

However, 22.81% - 16.23% = 6.58%
It is less than 6.61131%

But if I ignore the “currency add”, hence using 1.71% + 4.46%, they give 6.57.
This suggests that total outperformance should not take account of the current add.
Am I wrong? Or the total outperformance should be the sum of those 3 elements and the difference is just solely due to rounding?

 

[GraemeC]

What the report means is that of the 4.86% Asset Allocation profit, 0.85% came from currency effects and (therefore) 4.01% comes from country selection.

Thank you !
I understand how to work out the 5th column now! And I just ignored the 7th and the 8th columns.
I got another question.
It is about the outperformance of the fund which is equal to 6.58% = 22.81% - 16.23%
According to the exam report, it is equal to the stock selection added + asset allocation added + currency added = 1.71% + 4.46% + 0.0085 x 4.86% = 6.61131%

However, 22.81% - 16.23% = 6.58%
It is less than 6.61131%

But if I ignore the “currency add”, hence using 1.71% + 4.46%, they give 6.57.
This suggests that total outperformance should not take account of the current add.
Am I wrong? Or the total outperformance should be the sum of those 3 elements and the difference is just solely due to rounding?

 

[GraemeC]

Fund Return = (300-(250-10))/(250-0.5x10)=24.49%
Bench Return = (120/1.75)/(100/1.9)-1=30.29%
Curr Return = 1.9/1.75-1 = 8.57%

Using opening weights vs benchmark weights
Alloc = (50%-50%)x(30.29%-16.23%)
Curr = (50%-50%)x(8.57%-1.96%)
Stock = (24.49%-30.29%)x50%

I think the examiners report has got printer or transcription errors in it for columns 7 & 8

Using average actual weights versus benchmark
I can get a total fund return of 22.20% from (611-(500+0))/(500+0.5x0). Using weights of (250+0.5x(-10))/(500+0.5x0) gives a total US profit of -3.14% made up of -2.84% stock profit and -0.30% allocation profit.

-0.30% = (49%-50%)x30.29%
-2.84% = (24.49%-30.29%)x49%

Applying similar across all countries gives total allocation profit of 4.34%, total stock profit of 1.63% which totals to 5.97%.

I hope this helps

If you don't mind Please do for the whole of the US full attribution analysis i.e. all the compnents of row 1

 

[uktous]

Fund Return = (300-(250-10))/(250-0.5x10)=24.49%
Bench Return = (120/1.75)/(100/1.9)-1=30.29%
Curr Return = 1.9/1.75-1 = 8.57%

Using opening weights vs benchmark weights
Alloc = (50%-50%)x(30.29%-16.23%)
Curr = (50%-50%)x(8.57%-1.96%)
Stock = (24.49%-30.29%)x50%

I think the examiners report has got printer or transcription errors in it for columns 7 & 8

Using average actual weights versus benchmark
I can get a total fund return of 22.20% from (611-(500+0))/(500+0.5x0). Using weights of (250+0.5x(-10))/(500+0.5x0) gives a total US profit of -3.14% made up of -2.84% stock profit and -0.30% allocation profit.

-0.30% = (49%-50%)x30.29%
-2.84% = (24.49%-30.29%)x49%

Applying similar across all countries gives total allocation profit of 4.34%, total stock profit of 1.63% which totals to 5.97%.

I hope this helps

thank you for your answer.

I agree with -2.84% = (24.49%-30.29%)x49% is the stock profit

However, the allocation profit seems to be incorrect, because you are using
(Actual weight – benchmark weight) x benchmark return
...but not (Actual weight – benchmark weight) x (benchmark return - total benchmark return).

Any idea?

 

[GraemeC]

I think the first point to recall is that this is an alternative solution set so the logic will be slightly different.

Arithmetically

49%x24.49% - 50%x30.29%=-3.14%
(actual,actual)-(benchmark,benchmark)

if we add and subtract 49%x30.29% and rearrange we get

49%x(24.49%-30.29%) + (49%-50%)x30.29% = -2.84%-0.30% = -3.14%
(stock profit) + (allocation profit) = total profit (for sector)

Intuitively it makes sense to me because if you go 1% underweight against a benchmark returning 30% you would expect an allocation loss of .3%, then the stock loss follows as underperformance of 5.8% against benchmark times the actual weighting you have chosen to invest in that sector.

Just to complete the values, the currency contribution in this solution set is -0.1% which comes from (49%-50%)x(30.29%-20%), the 20% being the increase in the benchmark in local currency.

thank you for your answer.

I agree with -2.84% = (24.49%-30.29%)x49% is the stock profit

However, the allocation profit seems to be incorrect, because you are using
(Actual weight – benchmark weight) x benchmark return
...but not (Actual weight – benchmark weight) x (benchmark return - total benchmark return).

Any idea?

 

[Genesiss]

GraemeC, Thanks a lot for your comprehensive analysis.
I tend to find ST5 solutions very shallow on details...they assume too much and you have to grope around the dark for a very long time before you figure out some of the answers