7. Consider the following performance data for two portfolio managers (A and B) and a
common benchmark portfolio:
BENCHMARK MANAGER A MANAGER B
Weight Return Weight Return Weight Return
Stock 0.6 ?5.0% 0.5 ?4.0% 0.3 ?5.0%
Bonds 0.3 ?3.5 0.2 ?2.5 0.4 ?3.5
Cash 0.1 0.3 0.3 0.3 0.3 0.3
a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to
Manager A’s actual portfolio, and (3) the overall return to Manager B’s actual portfolio.
Briefly comment on whether these managers have under- or outperformed the
benchmark fund.
b. Using attribution analysis, calculate (1) the selection effect for Manager A, and (3) the
allocation effect for Manager B. Using these numbers in conjunction with your results
from Part a, comment on whether these managers have added value through their selection
skills, their allocation skills, or both.
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