I am looking at ST5 April 2015 Question 5 (ii)(b) which requires calculation of stock selection profit at the individual asset class level. I'm aware the formula for this is
actual sector weight *(actual sector return – notional sector return)
and in this case this needs to be calculated over a 3-year period.
However in this case the portfolio is not rebalanced, so the weight changes each year. So my question is is it correct to just use the starting weight to calculate the stock selection profit from each asset class? It feels like as the weights change over time the actual contribution would change too but i'm not sure.
Thanks.
actual sector weight *(actual sector return – notional sector return)
and in this case this needs to be calculated over a 3-year period.
However in this case the portfolio is not rebalanced, so the weight changes each year. So my question is is it correct to just use the starting weight to calculate the stock selection profit from each asset class? It feels like as the weights change over time the actual contribution would change too but i'm not sure.
Thanks.