Investment Manager Selection

Question 1

Macro Attribution

Answer 1

+ Done at sponsor level
+ Measure effect of sponsor’s choice to deviate from strategic asset allocation

Question 2

Micro Attribution

Answer 2

+ Done at manager level
+ Measure impact of portfolio managers’ allocation and selection decisions on total fund performance

Question 3

Return-based Attribution

Answer 3

+ Use total return over a period only
+ Use for hedge fund when holding info is unavailable
+ Least informative and subject to data manipulation

Question 4

Holding-based Attribution

Answer 4

+ Use beginning-of-period holdings of portfolio
+ More frequent data –> more accuracy
+ Not capture transaction during measurement period –> not reconcile to actual return
+ Residual (actual - holding-based return) = timing/trading effect
+ Appropriate for passive strategy (without much trading)

Question 5

Transaction-based Attribution

Answer 5

+ Use weights and return of all transaction
+ Including transaction costs
+ Most accurate attribution analysis but difficult and time-consuming

Question 6

appraisal ratio

Answer 6

= alpha / sigma
+ Alpha = return of portfolio - return suggest by CAPM
+ Sigma = standard deviation of the residual/unsystematic risk
+ Meaning: higher AR is generating more active return per unit of active risk

Question 7

define the universe investment manager

Answer 7

(1) suitability
(2) Style
(3) Active & Passive

Question 8

RBSA

Answer 8

return base style & analysis
+ Top down approach
+ Estimate portfolio’s sensitivities to Market indexes for key risk factors
Advantages:
+ Available data
+ Comparable across managers and through time
+ Timely performed
Disadvantages:
+ Limit identification of decision during period -> distort (xuyen tac) recognition of manager added
value
+ Stale price for Real Estate, PE Fund, VC fund, … –> underestimate risk

Question 9

HBSA

Answer 9

+ Bottom-up approach
+ Estimate risk based on actual holding
Advantages: ~ RBSA
Disadvantages:
+ Increased computational requirement
+ Not appropriate for high turnover port
+ Understate risk for stale price of illiquid asset

Question 10

Kich ban capture ratio

Answer 10

+ Long-only (100% Index) -> CR ~ 1
+ Positive Asymmetry (TT tang -> phan bo nhieu hon vao Index) -> CR > 1
+ Low beta (50% Index, 50% T-bill) -> CR =~1
+ Negative Asymetrym (TT tang -> phan bo it hon vao Index) -> CR < 1

Question 11

matrix tracking risk - active share

Answer 11

+ Tracking risk low - active share low: Closet indexer
+ Tracking risk high - active share high: concentrated stock pickers
+ Tracking risk low - active share high: diversified stock pickers
+ Tracking risk high - active share low: sector rotation

Question 12

3 types of Performance-based Fees

Answer 12

+ Symmetrical structure with full upside and downside exposures: Computed Fee = Base + Sharing of performance
+ Bonus with full upside and limited downside exposures: = Max (Base, Base + Sharing of positive performance)
+ Bonus with Limited upside and downside exposures = Max (Base, Base + Sharing of positive performance (within limit))

Question 13

type I manager errors

Answer 13

Bo sot
+ hire/retain manager no skill
+ explicit cost (commission, tax, fee)
+ more painful than Type II
+ easier to measure than Type II (chi can so sanh voi benchmark la biet)

Question 14

type II manager errors

Answer 14

Giet nham
+ Not hire/fire manager has skill
+ Oppotunity cost, the cost is not transparent

Question 15

lower cost of type I and type II

Answer 15

+ Smaller difference in sample size
+ Smaller difference in return distribution means
+ Greater difference in return distribution dispersion
+ More efficient market

Question 16

Investment Decision making process

Answer 16

(1) Idea Generation
(2) Idea Implementation
(3) Port construction
(4) Port monitoring

Question 17

Drawdown

Answer 17

is the total peak-to-trough loss for a specific time period
maximum drawdown is largest peak to trough during time period

Question 18

inefficiencies

Answer 18

1. Definition: security is mispricing
2. Categories:
   + Behavioral inefficiencies: mispricings created by the actions of other market participants
   + Structural inefficiencies: create by internal/external rule or regulation

Question 19

what type of strategy if:
+ low active share
+ low active risk

Answer 19

closet indexer:
phân bổ tỷ trọng các asset class giống với index và lựa chọn các cổ phiếu cũng giống với index

Question 20

what type of strategy if:
+ low active share
+ high active risk

Answer 20

sector rotator
phân bổ tỷ trọng các asset class khá giống, tuy nhiên các tài sản trong asset class lại pick các loại khác benchmark

Question 21

what type of strategy if:
+ high active share
+ high active risk

Answer 21

concentrate stock picker
Vừa allocate asset class khác với benchmark, đồng thời cũng pick các cổ phiếu khác đi

Question 22

what type of strategy if:
+ high active share
+ low active risk

Answer 22

Diversified stock picker
Allocate asset class khác với benchmark, tuy nhiên các cổ phiếu lại chọn khá giống với benchmark

Question 23

in mean reverting market, what type is lower cost, higher cost

Answer 23

Type I is lower cost
Type II is higher cost

Question 24

implicit cost

Answer 24

Chi phí nội sinh:
+ Market/Price impact
+ Oppotunity cost
+ Delay cost

Question 25

Explicit cost

Answer 25

Chi phí ngoại sinh:
+ Commission
+ Taxes & Fees