CFA Practice Question

CFA Practice Question

The Composite Construction section of GIPS standards requires:

I. All non-discretionary portfolios should be included in at least one composite.
II. A non-fee-paying discretionary portfolio may be included in a composite.
III. Terminated portfolios can be omitted in the historical returns of the appropriate composites.
A. I and III.
B. II and III.
C. III only.
Explanation: All actual, fee-paying and discretionary portfolios should be included in at least one composite.

Terminated portfolios must be included in the historical returns of the appropriate composites up to the last full measurement period that the portfolio was under management.

User Contributed Comments 6

User Comment
sheenalim because terminated portfolios must be included in historical returns of the appropriate composites, they can be omitted in other composites. that's what the question meant by 'appropriate composites'.
DannyZhou Can, may, must....
u0302638 Why Terminated portfolios CAN be omitted in the historical returns of the appropriate composites. --> isnt it Must be included--> CANT omit?
Profache The question states that "terminated portfolios can be omitted in the historical returns", which is a true statement.
For example, portfolios terminated for more than two years can be ommitted, but portfolios terminated up to the last measurement period must be included.
drb2234 Wouldnt managers take more risk with non-fee-paying portfolios therefore skewing historical returns??
harrybay Yeah I agree it becomes easy to cherry-pick the non-fee-paying portfolios to include in the composite
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