CIC Performance Measurement and Reporting 3

Question 1

The Sortino Ratio improves upon the Sharpe Ratio primarily by:

Accepted Answer

Replacing total standard deviation with downside deviation in the denominator

Answer

Using geometric rather than arithmetic mean returns in the numerator

Answer

Adjusting the risk-free rate for inflation

Answer

Including transaction costs in the return calculation

Question 2

The M-squared (M²) measure adjusts portfolio performance to:

Accepted Answer

Leverage or de-leverage the portfolio to match the benchmark's total risk level, then compare returns

Answer

Convert the manager's return to a risk-free equivalent

Answer

Normalize returns across different time periods

Answer

Remove the effect of management fees from reported returns

Question 3

Which of the following best defines 'active return'?

Accepted Answer

Portfolio return minus the benchmark return over the same period

Answer

Return earned on the actively traded portion of a portfolio

Answer

Total return minus the management fee

Answer

The return attributable to market timing decisions only

Question 4

When presenting composite performance under GIPS, the dispersion measure reported alongside composite returns is intended to show:

Accepted Answer

The variability of individual portfolio returns within the composite for that period

Answer

The range of benchmark returns used across different market cycles

Answer

The standard deviation of the composite's returns over the prior 10 years

Answer

The difference between gross-of-fees and net-of-fees composite returns

Question 5

A portfolio manager outperformed the benchmark by overweighting the technology sector, which subsequently rallied. In BHB attribution, this contribution is captured in the:

Accepted Answer

Allocation effect

Answer

Selection effect

Answer

Interaction effect

Answer

Active risk premium

Question 6

Under GIPS standards, performance must be presented:

Accepted Answer

On both a gross-of-fees and net-of-fees basis

Answer

On a gross-of-fees basis only, since management fees vary by client

Answer

On a net-of-fees basis only, to reflect actual investor experience

Answer

On whichever basis the prospective client requests in writing

Question 7

Which of the following statements about 'portfolio attribution' is most accurate?

Accepted Answer

Attribution analysis decomposes total active return to identify the sources of outperformance or underperformance relative to a benchmark

Answer

Attribution analysis evaluates the risk-adjusted return of the overall market only

Answer

Attribution analysis is only applicable to fixed-income portfolios

Answer

Attribution analysis replaces the need for benchmark selection in performance evaluation