Financial Risk Manager Part 2

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Explanation:

The contribution of the portfolio manager's asset allocation decision is calculated as the sum of the differences between the portfolio weights and the benchmark weights multiplied by the benchmark returns: $\sum (w_{p,i} - w_{b,i}) \times R_{b,i}$ .

For Equity: $(58\% - 50\%) \times 11\% = 8\% \times 11\% = 0.88\%$ .
For Fixed income: $(42\% - 50\%) \times 7\% = -8\% \times 7\% = -0.56\%$ .

Total asset allocation contribution = 0.88% - 0.56% = 0.32%.

Explanation:

For Equity: $(58\% - 50\%) \times 11\% = 8\% \times 11\% = 0.88\%$ .
For Fixed income: $(42\% - 50\%) \times 7\% = -8\% \times 7\% = -0.56\%$ .

Total asset allocation contribution = 0.88% - 0.56% = 0.32%.

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Question A fund of funds (FOF) manager is conducting a performance attribution analysis for a portfolio consisting of equity and fixed-income securities to evaluate the effects of the portfolio manager's asset allocation and security selection decisions. The FOF manager uses the information presented below:

Asset class Portfolio weight Benchmark weight Portfolio return Benchmark return
Equity 58% 50% 8% 11%
Fixed income 42% 50% 6% 7%

What is the contribution of the portfolio manager's asset allocation decision to the portfolio's overall excess return?

Asset class	Portfolio weight	Benchmark weight	Portfolio return	Benchmark return
Equity	58%	50%	8%	11%
Fixed income	42%	50%	6%	7%

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Last updated: July 5, 2026 at 07:28

-2.16%

-1.84%

-0.16%

0.32%