New York University



SMIF PORTFOLIO COMPOSITION & ATTRIBUTION ASSIGNMENTAssignment Background:In order to evaluate the performance of portfolio managers, we have to come up with a benchmark that the performance can be compared to. There are many important guidelines for how to chose a benchmark, but one of the most important ones is that it should be known ex-ante, and should be chosen (adjusted) to have the same risk as the portfolio being evaluated. The current benchmark for the SMIF portfolio is the S&P 500. The Standard & Poor’s (“S&P”) sectors of the economy constitute a method of sorting publicly traded companies, based on their primary business activity, into 11 sectors and 24 industry groups. Standard & Poor’s and Morgan Stanley Capital International (“MCSI”) created this methodology, which is also known as the Global Industry Classification System (“GICS”). the benchmark is determined, we can evaluate portfolio managers on a few different dimensions. The first, and most obvious dimension is on overall performance. Did the portfolio over or underperform the benchmark during a given period (month, ytd, year etc.). Secondly, we can attempt to establish whether the over- or underperformance was due to the portfolio managers choice of sector allocation and/or security selection. Eleven S&P SectorsInformation TechnologyHealth CareFinancialsConsumer DiscretionaryCommunication ServicesIndustrialsConsumer StaplesEnergyUtilities Real Estate MaterialsNote: Real Estate was separated from Financials after the market closed on 8/31/16, and given its own GICS sector. Also, a new “Communication Services” sector was added after the market closed on 9/28/18. The “Communication Services” was design to absorb the previous “Telecommunication Services” sector, but also includes some firms that were previously in the “Consumer Discretionary” and “Information Technology” sectors.Assignment Steps:Using Excel, create a spreadsheet that separates the stocks in our SMIF portfolio into the 11 S&P sectorsFor firms included in an S&P Index, you can look in the constituent list to find their sectorFor other firms, look up their “company description” and their competitors. You can also look up their “RBICS” revenue under “Company/Security” in FactSet and use that to classify them.Calculate the weight of each position in the portfolioNote that there are limits on each position from the SMIF Manual. Are there any positions that are violating the limits?Calculate the sector portfolio weights in our SMIF portfolio using current market prices.Using the symbol “SP50” in FactSet (or the function "SPX Index MEMB" on a Bloomberg Terminal), examine the historical sector weighting of the S&P 500. In Bloomberg, the screen shows the constituents of the S&P 500.?There should be a tab called "Historical Summary." That tab shows a chart of the sector weighting over time by default.Examine and comment on the historical index constituents of the S&P 500.In your Excel spreadsheet, compare the current sector weights in our portfolio to the current benchmark S&P 500 weights. Subtracting the index weights from the SMIF weights gives you the “active weight” of the portfolio in each sector. In which sectors are we over-weighted or under-weighted? By how much?Assuming that all stocks currently in the portfolio have been there indefinitely (and that the amount of cash has not changed), calculate what the weights of each stock were one year ago. HINT: V0=V1/(1+r)Calculate the return on each sector of the portfolio for the last yearWhat would have been the return of the SMIF portfolio in the absence of security selection (e.g. if the weights of the SMIF were invested in the stocks of the S&P sectors)? Comparing this to the S&P return tells you the performance due to sector allocationThe remaining difference in performance is due to security selection. Calculate how much that is ................
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