CFA Practice Question

CFA Practice Question

Maynard Investment Management manages money for several large and small clients. Different clients have different objectives and require different management styles (such as growth, income, large cap, small cap, fixed income, balanced, aggressive equity, etc.) Maynard presents its performance by allocating portfolios to three composites, which it believes represents 75% of all currently managed portfolios. It includes only current portfolios managed in its 5-year reported history. Maynard claims that its performance presentation is GIPS compliant. Which of the following statements is MOST TRUE?
A. Maynard is not GIPS compliant because it does not include all fee-paying discretionary portfolios in its composites.
B. Maynard is not GIPS compliant because it includes only currently managed portfolios and drops discontinued portfolios.
C. Maynard is not GIPS complaint because it does not include all fee-paying discretionary portfolios in its composites, and it includes only currently managed portfolios and drops discontinued portfolios.
Explanation: In order to be GIPS compliant, a firm must include all fee-paying discretionary portfolios in at least one composite. Furthermore, by excluding discontinued portfolios (perhaps discontinued due to under performance), the remaining portfolios overestimate the true performance potential of the firm's management abilities.

User Contributed Comments 8

User Comment
PedroEdmundo Does all fee paying means 100% of its account thus B is not right?
anitta it is including only 75% of the currently managed portfolios instead of 100%. Hence C is right
kfly The key word is "discretionary" because all the portfolios are managed similarily and should be in the composite. If a portfolio is not discretionary (ie. has restrictions on tobacco companies) then it should not be included in the composite.
StanleyMo i guess fee paying and non fee paying is another important point to note
hubmens I think the wording of the question needs to be amended. There was nothing specific in the question that states that it does not include all fee paying discretionary portfolios in its composite. I stand to be corrected, though.
copus The answer clearly is C becuase 75% is not 100%, and to be GIPS compliant, the investment manager needs to include all (100%) of fee paying discretionary portfolios.
birdperson why not A?
nfressell2 Copus how do you know the other 25% are not current non-fee paying nondiscretionary portfolios?
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