CIPM Exam 2023/2024 | Complete Questions and Answers

What is simplest way to decompose active return piece of a portfolio return? - ANSWER - 1.)Allocation Effect: holding diff amounts of same securities as bench (over or under weighting compared to bench) (thereby Q held is the sources of difference) 2.) Security Selection Effect: holding diff securities than benchmark (thereby returns are the sources of difference) Decompose an actively managed mutual fund return - ANSWER - P =M + A + S A: Active return = P- Benchmark (holding diff. weightsof same securities (alloc), or entirely diff securities than Bench (sec selec)) S:Style = Benchmark - Mrkt Index ** Keep in mind: Depending on the R^2, the portfolio's return is largely derived from the passive portf. portion. Active mngmt adds little additional.** Equity versus FI attribution - ANSWER - Equity: Focuses only on decomposing excess return FI: Focuses on decomposing total return. Total Return = Excess Return + Return due to taking on Systemic Risk. Systemic return drivers: Interest rate management effect: How well mngr prepares for parallel shifts in gov yield curve as well as changes in slope of yield curve (non parallel shift). Excess return drivers: Allocation effect: holding diff amounts of same securities as bench (over or under weighting compared to bench) (thereby Q held is the sources of difference) Security Selection: holding diff securities than benchmark (thereby returns are the