Chapter 26-27 Portfolio Performance & Investment Manager Selection Flashcards
CFAI Flashcards for Chapter 26-27
Absolute return benchmark
A minimum target return that an investment manager is expected to beat.
Arithmetic attribution
An attribution approach which explains the arithmetic difference between the portfolio return and its benchmark return. The single-period attribution effects sum to the excess return, however, when combining multiple periods, the sub-period attribution effects will not sum to the excess return.
Capture ratio
A measure of the manager’s gain or loss relative to the gain or loss of the benchmark.
Carhart model
A four factor model used in performance attribution. The four factors are: market (RMRF), size (SMB), value (HML), and momentum (WML).
Custom security-based benchmark
Benchmark that is custom built to accurately reflect the investment discipline of a particular investment manager. Also called a strategy benchmark because it reflects a manager’s particular strategy.
Drawdown
A decline in value (represented by a series of negative returns only) following a peak fund valuation.
Drawdown duration
The total time from the start of the drawdown until the cumulative drawdown recovers to zero.
Due diligence
Investigation and analysis in support of an investment action, decision, or recommendation.
Excess return
Used in various senses appropriate to context: 1) The difference between the portfolio return and the benchmark return; 2) The return in excess of the risk-free rate.
Factor-model-based benchmarks
Benchmarks constructed by examining a portfolio’s sensitivity to a set of factors, such as the return for a broad market index, company earnings growth, industry, or financial leverage.
Holdings-based attribution
A “buy and hold” attribution approach which calculates the return of portfolio and benchmark components based upon the price and foreign exchange rate changes applied to daily snapshots of portfolio holdings.
Holdings-based style analysis
A bottom-up style analysis that estimates the risk exposures from the actual securities held in the portfolio at a point in time.
Interaction effect
The attribution effect resulting from the interaction of the allocation and selection decisions.
Investment style
A natural grouping of investment disciplines that has some predictive power in explaining the future dispersion of returns across portfolios.
Key person risk
The risk that results from over-reliance on an individual or individuals whose departure would negatively affect an investment manager.
Macro attribution
Attribution at the sponsor level.
Manager peer group
Manager universe; A broad group of managers with similar investment disciplines. Also called manager peer group.
Manager universe
A broad group of managers with similar investment disciplines. Also called manager peer group.
Micro attribution
Attribution at the portfolio manager level. Whether returns are consistent wit hthe stated investment process.
Performance attribution
Attribution, including return attribution and risk attribution; often used as a synonym for return attribution.
Return attribution
A set of techniques used to identify the sources of the excess return of a portfolio against its benchmark.
Returns-based attribution
An attribution approach that uses only the total portfolio returns over a period to identify the components of the investment process that have generated the returns. The Brinson, Hood, Beebower approach is a returns-based attribution approach.
Returns-based benchmarks
Benchmarks constructed by examining a portfolio’s sensitivity to a set of factors, such as the returns for various style indexes (e.g., small-cap value, small-cap growth, large-cap value, and large-cap growth).
Returns-based style analysis
A top-down style analysis that involves estimating the sensitivities of a portfolio to security market indexes.
Risk attribution
The analysis of the sources of risk.
Risk premium
An extra return expected by investors for bearing some specified risk.
Sharpe ratio
The average return in excess of the risk-free rate divided by the standard deviation of return; a measure of the average excess return earned per unit of standard deviation of return. Also known as the reward-to-variability ratio.
Stop-losses
A trading order that sets a selling price below the current market price with a goal of protecting profits or preventing further losses.
Transactions-based attribution
An attribution approach that captures the impact of intra-day trades and exogenous events such as a significant class action settlement.
Idiosyncratic Risk
A category of investment risk that is unique to an individual asset
