Part 1: Sector Performance
Investment managers strive to outperform both the sector they focus on and broad market indexes such as the S&P 500. The performance of a portfolio is determined by both the weightings given to different types of investments as well as the actual performance of these investments. In addition, the level of risk an investor is willing to take on will impact the design of a portfolio.
To answer the questions in Part 1, you’ll use the information provided about the portfolio in the table below. The portfolio is broken out by sectors and shows the investor’s portfolio’s weighting and performance and the S&P 500’s weighting and performance in each sector. The final column shows the individual investments’ overall contributions to the portfolio. Note that an investment can underperform the S&P and still have a positive contribution to the portfolio based on the difference in weighting.
Portfolio Information
Sector (1) Portfolio Weighting (2) S&P Weighting (3) Differen-ces in Weighting (4) Portfolio Return (5) S&P Return (6) Sector Over-or Under- Perform
ance (7) = (3) x (6) Sector Allocation Contributions
Telecom- munications Services 3.10% 5.90% a. ? 2.50% 3.10% k. ? u. ?
Utilities 7.50% 3.80% b. ? 3.10% 1.90% l. ? v. ?
Information Technology 14.30% 17.90% c. ? 4.90% 3.20% m. ? w. ?
Materials 6.30% 3.70% d. ? 4.80% 5.10% n. ? x. ?
Financials 13.40% 17.10% e. ? 6.20% 4.80% o. ? y. ?
Consumer Discretionary 12.70% 13.50% f. ? 2.10% 4.00% p. ? z. ?
Industrials 14.10% 11.90% g. ? 4.90% 3.10% q. ? aa. ?
Energy 8.40% 8.00% h. ? 3.70% 8.60% r. ? bb. ?
Healthcare 15.30% 11.70% i. ? 9.80% 5.70% s. ? cc. ?
Consumer Staples 4.90% 6.50% j. ? 1.50% 13.20% t. ? dd. ?
Fill in the missing values in the table above for a quarterly comparison of sectors with the S&P 500 Index. Remember when performing calculations that the numbers shown are percentage values. Record your answers as percentage values to two decimal places.
a. _______ k. _______ u. _______
b. _______ l. _______ v. _______
c. _______ m. _______ w. _______
d. _______ n. _______ x. _______
e. _______ o. _______ y. _______
f. _______ p. _______ z. _______
g. _______ q. _______ aa. _______
h. _______ r. _______ bb. _______
i. _______ s. _______ cc. _______
j. _______ t. _______ dd. _______
Did the performance turned in by the investment manager underperform or outperform the S&P 500? By how much? Show your work.
Which sector turned in the greatest positive contribution to the portfolio’s performance? Explain why this investment made the greatest positive contribution based on the differences in weighting and the sector over- or under- performance.
Which sector made the greatest negative contribution to the portfolio’s performance? Explain why this investment made the greatest negative contribution based on the differences in weighting and the sector over- or under- performance
