Portfolio Performance Measurement
questions with answers.
Passive Manager ANS -Low Fee
Low Turnover
Aim for Market Wide return
return = risk merits
Active Manager ANS -High Fee
High Turnover
Beat MKT
return > risk merit
Agency Problem of Fund Management ANS -Different Incentives
Client: High return, low cost
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Manager: more money, high fees
Total Return Problem ANS -Because of the expected return-risk relationship
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The manager will always take on more risk in order to get the higher return!
Performance Measures ANS -1.M-Square -use this measure if you plan on allocating the entire portfolio
to a single fund. The M-Square lets you decide which fund has the best risk-adjusted return.
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2.Treynor measure - use this measure if you plan on allocating the portfolio to multiple funds (i.e., you
form a fund of funds)
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questions with answers.
Passive Manager ANS -Low Fee
Low Turnover
Aim for Market Wide return
return = risk merits
Active Manager ANS -High Fee
High Turnover
Beat MKT
return > risk merit
Agency Problem of Fund Management ANS -Different Incentives
Client: High return, low cost
---
Manager: more money, high fees
Total Return Problem ANS -Because of the expected return-risk relationship
---
The manager will always take on more risk in order to get the higher return!
Performance Measures ANS -1.M-Square -use this measure if you plan on allocating the entire portfolio
to a single fund. The M-Square lets you decide which fund has the best risk-adjusted return.
---
2.Treynor measure - use this measure if you plan on allocating the portfolio to multiple funds (i.e., you
form a fund of funds)
---
