Primo Management Company is looking at how best to evaluate the performance of its managers. Primo has been hearing more and more about benchmark portfolios and is interested in trying this approach. As such, the company hired Sally Jones, CFA, as a consultant to educate the managers on the best methods for constructing a benchmark portfolio, how to choose the best benchmark, whether the style of the fund under management matters, and what they should do with their global funds in terms of benchmarking. For the sake of discussion, Jones put together some comparative two-year performance numbers that relate to Primo's current domestic funds under management and a potential benchmark. Weight Style Category Large-cap growth Mid-cap growth Small-cap growth Primo Benchmark 0.60 0.50 0.15 0.40 0.25 0.10 Primo 17% 24 20 Large-cap growth Mid-cap growth Small-cap growth Total within-sector selection As part of her analysis, Jones also takes a look at one of Primo's global funds. In this particular portfolio, Primo is invested 75% in Dutch stocks and 25% in British stocks. The benchmark is invested 50% in Dutch and 50% in British stocks. On average, the British stocks outperformed the Dutch stocks. The euro appreciated 6% versus the U.S. dollar over the holding period while the pound depreciated 2% versus the dollar. In terms of the local return, Primo outperformed the benchmark with the Dutch investments but underperformed the index with respect to the British stocks. Answer is complete but not entirely correct. Return Required: What is the within-sector selection effect for each individual sector? (Round your answers to 1 decimal place. Negative amount should be indicated by a minus sign.) 0.6 % (0.3) % 0.5 % (2.2) X% Benchmark 16% 26 18
Primo Management Company is looking at how best to evaluate the performance of its managers. Primo has been hearing more and more about benchmark portfolios and is interested in trying this approach. As such, the company hired Sally Jones, CFA, as a consultant to educate the managers on the best methods for constructing a benchmark portfolio, how to choose the best benchmark, whether the style of the fund under management matters, and what they should do with their global funds in terms of benchmarking. For the sake of discussion, Jones put together some comparative two-year performance numbers that relate to Primo's current domestic funds under management and a potential benchmark. Weight Style Category Large-cap growth Mid-cap growth Small-cap growth Primo Benchmark 0.60 0.50 0.15 0.40 0.25 0.10 Primo 17% 24 20 Large-cap growth Mid-cap growth Small-cap growth Total within-sector selection As part of her analysis, Jones also takes a look at one of Primo's global funds. In this particular portfolio, Primo is invested 75% in Dutch stocks and 25% in British stocks. The benchmark is invested 50% in Dutch and 50% in British stocks. On average, the British stocks outperformed the Dutch stocks. The euro appreciated 6% versus the U.S. dollar over the holding period while the pound depreciated 2% versus the dollar. In terms of the local return, Primo outperformed the benchmark with the Dutch investments but underperformed the index with respect to the British stocks. Answer is complete but not entirely correct. Return Required: What is the within-sector selection effect for each individual sector? (Round your answers to 1 decimal place. Negative amount should be indicated by a minus sign.) 0.6 % (0.3) % 0.5 % (2.2) X% Benchmark 16% 26 18
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Mansukh
Transcribed Image Text:Primo Management Company is looking at how best to evaluate the performance of its managers. Primo has been hearing more and
more about benchmark portfolios and is interested in trying this approach. As such, the company hired Sally Jones, CFA, as a
consultant to educate the managers on the best methods for constructing a benchmark portfolio, how to choose the best benchmark,
whether the style of the fund under management matters, and what they should do with their global funds in terms of benchmarking.
For the sake of discussion, Jones put together some comparative two-year performance numbers that relate to Primo's current
domestic funds under management and a potential benchmark.
Weight
Style Category
Large-cap growth
Mid-cap growth
Small-cap growth
Primo Benchmark
0.60
0.15
0.25
0.50
0.40
0.10
Large-cap growth
Mid-cap growth
Small-cap growth
Total within-sector selection
Primo
17%
24
20
As part of her analysis, Jones also takes a look at one of Primo's global funds. In this particular portfolio, Primo is invested 75% in
Dutch stocks and 25% in British stocks. The benchmark is invested 50% in Dutch and 50% in British stocks. On average, the British
stocks outperformed the Dutch stocks. The euro appreciated 6% versus the U.S. dollar over the holding period while the pound
depreciated 2% versus the dollar. In terms of the local return, Primo outperformed the benchmark with the Dutch investments but
underperformed the index with respect to the British stocks.
Answer is complete but not entirely correct.
Required:
What is the within-sector selection effect for each individual sector? (Round your answers to 1 decimal place. Negative amount
should be indicated by a minus sign.)
0.6
(0.3)
0.5
%
%
%
(2.2) X %
Return
Benchmark
16%
26
18
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