CFA Practice Question

CFA Practice Question

Doleman Investment Management reports portfolio performance for a selected few composites on the basis of end of period asset weights.
A. Doleman has violated Standard III (D) - Performance Presentation.
B. Doleman is in compliance with Standard III (D) - Performance Presentation.
C. Doleman is in compliance with Standard III (D) as it has used the end of period weights.
Explanation: Doleman is in violation of Standard III (D) as it has used only a few, not all, composites and has weighted their returns on the basis of end of period, not beginning of period, weights.

User Contributed Comments 4

User Comment
cong Why beginning of the period weights?
apiccion @cong,
Using end-of-period results in a weak form of survivorship bias.

For example,
Initially stock A and B both trade at $10 and have equal weighting (50/50) in the portfolio. After one year, stock A remains constant but stock B tanks to $0.10. The management decides to re-weigh the portfolio such that stock A has 99% weight, and stock B has 1% weight. The end result is that the company has masked it's performance results.
Allen88 nice, apiccion. thanks!
indrayudha good explanation, apiccion!
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