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Welcome to our CFA Level II lecture on Active Management and the Analysis of Active Returns. In this introductory lesson, you’ll learn how to determine and calculate the value added from active management relative to a benchmark.
What You’ll Learn:
1. Benchmarking Basics:
• Understand the criteria for selecting an appropriate benchmark and the difference between ex-ante (forward-looking) and ex-post (backward-looking) analysis.
2. Calculating Active Return:
• Learn how to calculate the active return of a portfolio, both expected and actual, using deviation in asset and security weights.
3. Active Return Components:
• Differentiate between asset allocation return and security selection return.
• Understand how to calculate these components and their contribution to the total active return.
4. Practical Application:
• Work through an example with the KG Supreme Fund benchmarked against the Prominent World Index to compute asset allocation return, security selection return, and total active return.
By the end of this lesson, you’ll have a solid foundation in measuring the value added by active management, preparing you for more advanced topics in portfolio management and your CFA Level II exams.