This question relates to the Bottom up investment performance appraisal. The following table provides the top 6 holdings of a fund and its benchmark, and the return for each asset over the last 1 year.Security NameWeight in FundWeight in IndexReturnIndustryAMZN8%7%28%TechGO7.5%6.5%25%TechJMT0.6%2.5%2%TechBGA3%7%5%Cons. StaplesCA2%6%7%Cons. StaplesBTU2.5%4.5%8%Cons. StaplesCalculate the Allocation Effect for the fund. Group of answer choices3.33%14%None of the other answers are correct5.34%2.01%
Question
This question relates to the Bottom up investment performance appraisal. The following table provides the top 6 holdings of a fund and its benchmark, and the return for each asset over the last 1 year.Security NameWeight in FundWeight in IndexReturnIndustryAMZN8%7%28%TechGO7.5%6.5%25%TechJMT0.6%2.5%2%TechBGA3%7%5%Cons. StaplesCA2%6%7%Cons. StaplesBTU2.5%4.5%8%Cons. StaplesCalculate the Allocation Effect for the fund. Group of answer choices3.33%14%None of the other answers are correct5.34%2.01%
Solution
To calculate the Allocation Effect for the fund, we need to follow these steps:
-
First, we need to calculate the difference in weights between the fund and the index for each security. This is done by subtracting the weight in the index from the weight in the fund.
-
Then, we multiply this difference by the return of the security in the index.
-
Finally, we sum up all these values to get the Allocation Effect.
Let's do the calculations:
For AMZN: (8% - 7%) * 28% = 0.28% For GO: (7.5% - 6.5%) * 25% = 0.25% For JMT: (0.6% - 2.5%) * 2% = -0.038% For BGA: (3% - 7%) * 5% = -0.2% For CA: (2% - 6%) * 7% = -0.28% For BTU: (2.5% - 4.5%) * 8% = -0.16%
Adding all these up, we get: 0.28% + 0.25% - 0.038% - 0.2% - 0.28% - 0.16% = 0.102%
So, the Allocation Effect for the fund is 0.102%. This means that none of the provided answer choices are correct.
Similar Questions
Evaluate the below unit trusts for performance evaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 8%. The average returns, standard deviations and betas for the three funds are given below.Unit trustAverage returnStandard deviationBetaFund Alpha10%0.050.4Fund Beta12%0.151.0Fund Sigma15%0.101.2 Determine the fund with the highest Sharpe measure.Select one:a.Fund Betab.Fund Alpha and Sigma are tiedc.Fund Sigmad.Fund Alpha
Factors which contribute to the return-on-investment percentage for a particular site are
2) All of the assets discussed in this video have different rates of return and different levels of ______.abook-entry ownershipbmarket capitalizationcriskdpresence on the Dow Jones Industrial Index
Choose the analytical tool that does not evaluate how well Netflix’s strategy and competitive approach are currently working.Multiple Choicevalue chain analysisbenchmarkingPorter’s three tests for evaluating diversification outside the core businesscompetitive strength assessmentresource and capability analysis
Which of the following factors is expected to be the key contributor to total returns over the long-term: O a. Asset Allocation • b. Security Selection O c. Currency Management O d. Management Expertise O e. Luck
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.