After much deliberation, Dennis decides to go with an actively managed, U.S. equity-only portfolio. Exhibit 3 shows, by sector, the one-month performance of his portfolio and its associated benchmark.
(a) Calculate and interpret the pure sector allocation return for the energy sector. Specify the underlying assumption(s) in your interpretation.

(b) Calculate and interpret the within-sector selection return for the financial sector. Specify the underlying assumption(s) in your interpretation.

 

Transcribed Image Text:

Exhibit 3. Benchmark and Sector Weight and Performance Economic Sectors Portfolio Benchmark Weight Return Weight Return Basic materials 5.97% -0.79% 5.54% -0.67% Capital goods 7.82% -3.60% 7.99% -3.95% Consumer durables 2.90% 0.46% 2.38% -0.21% Consumer nondurables 31.78% 1.92% 34.75% 1.97% Energy 7.15% 0.37% 6.01% 0.14% Financial 22.47% 2.92% 20.91% 2.05% Technology 12.14% 2.00% 16.02% -0.30% Utilities 8.64% 0.46% 6.40% -0.37% Cash and equivalent Total Portfolio 1.13% 0.14% 0.00% 100.00% 1.26% 100.00% 0.69% Exhibit 3. Benchmark and Sector Weight and Performance Economic Sectors Portfolio Benchmark Weight Return Weight Return Basic materials 5.97% -0.79% 5.54% -0.67% Capital goods 7.82% -3.60% 7.99% -3.95% Consumer durables 2.90% 0.46% 2.38% -0.21% Consumer nondurables 31.78% 1.92% 34.75% 1.97% Energy 7.15% 0.37% 6.01% 0.14% Financial 22.47% 2.92% 20.91% 2.05% Technology 12.14% 2.00% 16.02% -0.30% Utilities 8.64% 0.46% 6.40% -0.37% Cash and equivalent Total Portfolio 1.13% 0.14% 0.00% 100.00% 1.26% 100.00% 0.69%

Answer rating: 100% (QA)

a For Pure sector Allocation Return Benchmark Return Sector Benchmark Return Overall Weight Portfoli... View the full answer