Asset Allocation - Topic Test Question (To Sharpe or not to Sharpe)

CFA Level III Portfolio Management
#1

Tina Swan Case - Q1 - The most appropriate portfolio that meets the requirements for the XTR funds is the one that maximizes the Sharpe ratio with the least amount of risk.

Vitting University - Q5 - The portfolio that has the highest probability of meeting the committees desired return calculation is not the one with the highest Sharpe but is the one that generates the highest value for the ratio: (expected annual return – target return)/return volatility.

Is this not confusing to anyone? Sharpe to me is a ratio that tells me the return given a level of risk (ie uncertainty). Why would this also not be what you’re looking for with Vitting?

#2

If they have a minimum return, you use Roy’s safety ratio. Sometimes they problem will say to follow the manager’s recommended approach and that is clue to use whatever the vignette says to use.

#3

Very good - thank you kind sir