A pension fund has a policy allocation for Japan of 20% and is benchmarked to the MSCI Japan index. The manager has allocated only 12% to Japan. The MSCI Japan index returned -3.2% last month and the manager's Japanese portfolio returned 0.6%.

 

a. Compute the manager's performance contribution due to the asset allocation decision. Is the contribution positive or negative?

 

b. Compute the manager's performance contribution due to the security selection decision. Is the contribution positive or negative?

Answer rating: 100% (QA)

SOLUTION a To compute the managers performance contribution due to the asset allocation decision we need to compare the benchmark return to the actual return of the portfolio The difference between th... View the full answer