In: Accounting
You are provided with the following data for a three-sector LUSE portfolio (P) and the benchmark (B):
Sector Weight (P) Weight (B) Return (P) Return (B)
Energy 50% 50% 18% 10%
Health Care 30% 20% −3% −2%
Financials 20% 30% 10% 12%
Required:
[06 Marks]
[06 Marks]
[04 Marks]
[04 Marks]
[Total: 20 Marks]
Answer :
For the following set of portfolio and index data
Sector | Weight P | Weight B | Return P | Return B |
Energy | 0.5 | 0.5 | 18.00% | 10.00% |
Healthcare | 0.3 | 0.2 | -3.00% | -2.00% |
Financials | 0.2 | 0.3 | 10.00% | 12.00% |
(a).
The sectoral allocation contribution is found for the both the portfolio P and the index beachmark B as follows
Allocation contribution | Portfolio | Beachmark |
Energy | 9.00% | 5.00% |
Healthcare | -0.90% | -0.40% |
Financials | 2.00% | 3.60% |
(b).
The performance of the fund manager to derive over and above benchmark return in the portfolio is calculated as follows
Allocation contribution | Performance |
Energy | 4.00% |
Healthcare | -0.50% |
Financials | -1.60% |
(c)
Allocation contribution | Portfolio | Benchmark |
Energy | 9.00% | 5.00% |
Healthcare | -0.90% | -0.40% |
Financials | 2.00% | 3.60% |
Overall performance | 10.10% | 8.20% |
While looking at the sectoral performance the portfolio is underperforming in the healthcare and the Financial segment. On the overall basis the portfolio has a return of 10.10% which is higher than the benchmark return of 8.20% for the index.Hence the performance of the portfolio on an overall basis is berrer than of the benchmark.
(d).
The main causes for the differences