In the micro attribution example in the errata, it says
“The large-cap value benchmark underperformed the total benchmark (−0.28% versus –0.03%). Because the portfolio was underweight large-cap value, this led to a positive allocation effect of 0.03.” This has to be a mistake. The fund manager is overweight (58% vs 50% in the benchmark). The output table even shows a negative allocation effect of -0.02.
Second, (and someone can clarify whether we are required to do the calculation), when performing the micro attribution, which benchmark return should we use ? Should we use the total benchmark return or the benchmark return for the sub-managers. I don’t know whether i understood Mark Meldrum correctly but he said we should use the benchmark for the respective styles(managers).
Let’s use the curriculum exam and use the value manager. Total benchmark return is -0.03. Value benchmark return is 0.32. The small and large cap value return is 1.52 and -0.28 respectively. When calculating the allocation effect for the small cap equities(Fund manager weight is 20.0% while benchmark weight is 25.0%), should we calculate it as (i) (0.2-0.25)(1.52 - (-0.03)) or (ii) (0.2 - 0.25)(1.52 - 0.32). Mark says we should use the second one but the errata hasn’t made any changes.