You have been asked to evaluate returns from your commercial real estate investment fund (Bluestone Fund) against an industry benchmark index to determine how successful your “active” investment strategy has been. Specifically, a potential client wants you to compare the performance of your portfolio strategy against a “passive” strategy of simply investing based on the same proportions of properties and locations comprising the index.

During the most current quarter, the following information has been provided to you based on property type and location:

a. Calculate the extent to which the Bluestone Fund is over- or (under)weighted by property type relative to the industry index.

b. Calculate the extent to which the Bluestone Fund is over- or (under)weighted by location/region relative to the industry index.

c. To what extent was the superior performance by Bluestone attributable to propertyselection and allocation in (A)?

d. To what extent was the superior performance by Bluestone attributable to property selection and allocation in (B)?

e. Assuming that the standard deviation of returns for its Bluestone Fund was 10.0 and 9.0 for index returns, what may be said about the relative risk for the two funds?

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A. B. Property Type Apartments Hotel Industrial Office Retail. Total Location Type North South East West Total Bluestone Fund % of Fund Value Return 14.4% 13.0% 0.0% 0.0% 13.5% 8.5% 44.1% 12.7% 28.3% 8.6% 100.0% … Bluestone Fund % of Fund Value 6.3% 27.6% Return 4.5% 8.6% 43.3% 14.0% 22.7% 9.9% 100.0% Weighted Return 1.8% 0.0% 1.2% 5.6% 2.1% 11.0% Weighted Return 0.3% 2.4% 6.1% 2.2% 11.0% % of Index Value 20.4% 2.1% 16.0% 37.2% 24.3% 100.0% % of Index Value 11.0% 18.0% 34.0% 37.0% 100.0% Industry Index Return 8.9% 8.5% 7.0% 7.6% 9.7% --- Industry Index Return 6.1% 7.8% 9.0% 8.8% Weighted Return ….. 1.8% 0.2% 1.1% 2.8% 2.4% 8.3% Weighted Return 0.6% 1.4% 3.1% 3.2% 8.3% A. B. Property Type Apartments Hotel Industrial Office Retail. Total Location Type North South East West Total Bluestone Fund % of Fund Value Return 14.4% 13.0% 0.0% 0.0% 13.5% 8.5% 44.1% 12.7% 28.3% 8.6% 100.0% … Bluestone Fund % of Fund Value 6.3% 27.6% Return 4.5% 8.6% 43.3% 14.0% 22.7% 9.9% 100.0% Weighted Return 1.8% 0.0% 1.2% 5.6% 2.1% 11.0% Weighted Return 0.3% 2.4% 6.1% 2.2% 11.0% % of Index Value 20.4% 2.1% 16.0% 37.2% 24.3% 100.0% % of Index Value 11.0% 18.0% 34.0% 37.0% 100.0% Industry Index Return 8.9% 8.5% 7.0% 7.6% 9.7% --- Industry Index Return 6.1% 7.8% 9.0% 8.8% Weighted Return ….. 1.8% 0.2% 1.1% 2.8% 2.4% 8.3% Weighted Return 0.6% 1.4% 3.1% 3.2% 8.3%

Answer rating: 100% (QA)

a The Bluestone Fund is overweighted in apartments 130 vs 89 industry index and hotel 02 vs 06 industry index and ... View the full answer