CFA Examination Level III
A U.S. pension plan hired two off-shore firms to manage the non-U.S. equity portion of its total portfolio. Each firm was free to own stocks in any country market included in Morgan Stanley/Capital International’s Europe, Australia, and Far East Index (EAFE) and free to use any form of dollar and/or nondollar cash or bonds as an equity substitute or reserve. After three years had elapsed, the records of the managers and the EAFE Index were as follows:
| SUMMARY: CONTRIBUTIONST O RETURN | |||||
| Currency | Country Selection |
Stock Selection |
Cash/Bond Allocation |
Total Return Recorded |
|
| Manager A | -9.00% | 19.70% | 3.10% | 0.60% | 14.40% |
| Manager B | -7.4 | 14.2 | 6 | 2.81 | 5.6 |
| Composite of A & B | -8.2 | 16.9 | 4.5 | 1.71 | 5 |
| EAFE Index | -12.9 | 19.9 | — | — | 7 |
You are a member of the plan sponsor’s Pension Committee, which will soon meet with the plan’s consultant to review manager performance. In preparation for this meeting, you go through the following analysis:
a. Briefly describe the strengths and weaknesses of each manager, relative to the EAFE Index data.
b. Briefly explain the meaning of the data in the “Currency†column.
Jermaine Byrant
Nicole Johnson
OVER
RATING
YEARS
