Explanation:
The manager earned an excess return from active management but not from style. Active management refers to a strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index. In this case, the manager's return (7.6%) is higher than the benchmark return (6.2%), indicating that the manager has earned an excess return from active management. The excess return is calculated as the difference between the manager's return and the benchmark return, which is 1.4% (7.6% - 6.2%).
On the other hand, style return refers to the return attributable to the manager's investment style. It is calculated as the difference between the manager's return and the market return. In this case, the manager's return (7.6%) is less than the market return (8.8%), indicating that the manager did not earn a return from style. The style return is -1.2% (7.6% - 8.8%). Therefore, the manager earned an excess return from active management but not from style.
Choice A is incorrect. The manager did not earn an excess return from style. Style return is the difference between the benchmark return and the market index, which in this case is -2.6% (6.2% - 8.8%). Since it's negative, it indicates that the manager did not outperform the market index through his investment style.
Choice C is incorrect. As explained above, there was no excess return from style as indicated by a negative value of -2.6%. Therefore, it's impossible for the manager to have earned an excess return from both active management and style.
Choice D is incorrect. The fund manager did earn an excess return from active management but not from style as explained above in choice A and B explanations respectively.
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Q.3184 Zhong Ren is a performance analyst at JingShin Financial, a large Chinese investment bank. During the annual performance evaluation, Ren is analyzing his fund manager’s performance. He has gathered the following information for his analysis:
Based on the above information, how can the manager's performance be most accurately characterized?
A
The manager earned an excess return from style but not from active management.
B
The manager earned an excess return from active management but not from style.
C
The manager earned an excess return from style and active management.
D
The manager earned an excess return neither from active management nor from style.