composite vs mutual fund

CFA Level I Ethics
#1

Hi all,

I started of with the ethics part for Level 1 (dec. exam) and i’m just trying to get a hand on composites (GIPS part). Can I consider a mutual fund also as a composite and as a result should the performance of mutual funds (ideally) also reflect the GIPS standards? much appreciated Benjamin

#2

A composite is a collection of portfolios managed by a firm; these portfolios will all have similar holdings, similar goals, and so on.

For example, all of the intermediate-term bond portfolios might be combined into an intermediate-term bond composite. All of the large-cap domestic equity portfolios might be combined into a composite. And so on.

The only reason that a single mutual fund would be a composite (by itself) is that the firm manages that mutual fund, and they don’t have any other funds or portfolios that are similar in structure/holdings/mandate to be combined with that fund.

#3

OK thanks S2000!

I have a follow up question/scenario;

Pension fund ABC has selected asset manager XYZ to manage their assets and XYZ does this by putting into a portfolio with a Global Equity mutual fund, European Equity fund, Covered Bonds Fund . -> when setting up some XYZ composites there might be an overlap between the Global Eq fund and the European Fund so would it be possible to set up the follwoing composites;

  1. Global Equity Composite which consists of holdings of ABC (and other portfolios) in the GE and Eur Eq fund

  2. European Equity Composite which consists only of the holdings (abc and other portfolios) in the Euro Equity fund

  3. Covered bond composite

So the portfolio of ABC would be split up into several composites, can this be the case?

Benjamin

#4

You’re quite welcome.

Yes, it can, as long as the cash balance in the portfolio is split amongst the composites.

This is a Level III question, by the way.

#5

thanks S2000…beter be ahead of the curve :wink:

#6

There are tons of details to memorize for GIPS at Level III. I encourage my Level I candidates to start studying the details of GIPS the day after they take the Level I exam: better to have two years to memorize all the details than to wait and have only three or four months to try to do so.