Question: Consider the following performance data for a fund manager and the managers benchmark portfolio. Benchmark Fund Manager Weight Return Weight Return Stock 0.6 7.6% 0.8

Consider the following performance data for a fund manager and the manager’s benchmark portfolio.

	Benchmark		Fund Manager
	Weight	Return	Weight	Return
Stock	0.6	7.6%	0.8	9.2%
Bonds	0.3	1.2%	0.15	1.3%
Cash	0.1	0.6%	0.05	0.5%

a. Calculate (i) the overall return to the benchmark portfolio and (ii) the overall return to the fund manager’s actual portfolio. Briefly comment on whether the fund manager has under or outperformed the benchmark fund.

b. Using attribution analysis, calculate (i) the selection effect for the fund manager and (ii) the allocation effect for the manager.

c. Using these numbers in conjunction with your results from Part a, comment on whether the manager has added value through selection skills, allocation skills, or both.

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