Arthur Campbell, CFA, is the founder of Campbell Capital Management (CCM), a money management firm focused solely on high net worth individuals. Campbell started CCM two years ago after a 25-year career with a large bank trust department. CCM provides portfolios tailored to match the unique situation of each individual client. All of CCM's clientele have balanced portfolios. CCM does not use derivatives or exotic instruments to manage any of its portfolios. CCM's equity style is defined as growth at a reasonable price (GARP). Most of CCM's portfolios are managed under one of the following three approaches:• Aggressive (10 accounts): 70% stocks and 30% bonds.• Moderate (4 accounts): 50% stocks and 50% bonds.• Conservative (25 accounts): 30% stocks and 70% bonds. CCM has recently added the following two clients:1. Harold Moss, a long-time acquaintance of Campbell. Campbell and Moss agreed to an investment policy statement in which Moss' portfolio will be managed under CCM's Aggressive approach but will have significantly greater exposure to technology stocks than a typical CCM aggressive portfolio.2. Richard Bateman is a successful businessman with a $5 million portfolio. Bateman wants his portfolio managed using a conservative approach, and he specifically states that no options or futures are to be used.A current client, Stan North, has decided to retire. North would like to reduce his risk exposure from aggressive to conservative. CCM moves North's account, including its historical performance, to the conservative composite.At the end of 2008, CCM reports the moderate portfolio composite performance but does not include the associated number of accounts.CCM reported the 2008 returns on its conservative composite as shown in Figure 1: Figure 1: CCM Conservative Composite Returns: Year Ending December 31, 2007 The data shown in Figure 2 relates to Moss portfolio transactions from the 2nd quarter of 2008. Figure 2: CCM Equity Returns for the Second Quarter of 2008CCM established three types of composites: aggressive, moderate, and conservative. State whether CCM's composites are correctly defined according to GIPS?
Answer(s): C
Composites can be delineated using equity and bond exposures, as long as the ranges are tightly defined. GIPS do not mandate what type of composites or the number of composites to create. (Study Session 18, LOS 49.h)
Arthur Campbell, CFA, is the founder of Campbell Capital Management (CCM), a money management firm focused solely on high net worth individuals. Campbell started CCM two years ago after a 25-year career with a large bank trust department. CCM provides portfolios tailored to match the unique situation of each individual client. All of CCM's clientele have balanced portfolios. CCM does not use derivatives or exotic instruments to manage any of its portfolios. CCM's equity style is defined as growth at a reasonable price (GARP). Most of CCM's portfolios are managed under one of the following three approaches:• Aggressive (10 accounts): 70% stocks and 30% bonds.• Moderate (4 accounts): 50% stocks and 50% bonds.• Conservative (25 accounts): 30% stocks and 70% bonds. CCM has recently added the following two clients:1. Harold Moss, a long-time acquaintance of Campbell. Campbell and Moss agreed to an investment policy statement in which Moss' portfolio will be managed under CCM's Aggressive approach but will have significantly greater exposure to technology stocks than a typical CCM aggressive portfolio.2. Richard Bateman is a successful businessman with a $5 million portfolio. Bateman wants his portfolio managed using a conservative approach, and he specifically states that no options or futures are to be used.A current client, Stan North, has decided to retire. North would like to reduce his risk exposure from aggressive to conservative. CCM moves North's account, including its historical performance, to the conservative composite.At the end of 2008, CCM reports the moderate portfolio composite performance but does not include the associated number of accounts.CCM reported the 2008 returns on its conservative composite as shown in Figure 1: Figure 1: CCM Conservative Composite Returns: Year Ending December 31, 2007 The data shown in Figure 2 relates to Moss portfolio transactions from the 2nd quarter of 2008. Figure 2: CCM Equity Returns for the Second Quarter of 2008 Was CCM's movement of North's account from the aggressive composite to the conservative composite consistent with GIPS standards?
Answer(s): B
CCM should move North’s account from the aggressive composite to the conservative composite. However, the historical performance of North's account must stay with the aggressive composite. (Study Session 18, LOS 49.i)
Arthur Campbell, CFA, is the founder of Campbell Capital Management (CCM), a money management firm focused solely on high net worth individuals. Campbell started CCM two years ago after a 25-year career with a large bank trust department. CCM provides portfolios tailored to match the unique situation of each individual client. All of CCM's clientele have balanced portfolios. CCM does not use derivatives or exotic instruments to manage any of its portfolios. CCM's equity style is defined as growth at a reasonable price (GARP). Most of CCM's portfolios are managed under one of the following three approaches:• Aggressive (10 accounts): 70% stocks and 30% bonds.• Moderate (4 accounts): 50% stocks and 50% bonds.• Conservative (25 accounts): 30% stocks and 70% bonds. CCM has recently added the following two clients:1. Harold Moss, a long-time acquaintance of Campbell. Campbell and Moss agreed to an investment policy statement in which Moss' portfolio will be managed under CCM's Aggressive approach but will have significantly greater exposure to technology stocks than a typical CCM aggressive portfolio.2. Richard Bateman is a successful businessman with a $5 million portfolio. Bateman wants his portfolio managed using a conservative approach, and he specifically states that no options or futures are to be used.A current client, Stan North, has decided to retire. North would like to reduce his risk exposure from aggressive to conservative. CCM moves North's account, including its historical performance, to the conservative composite.At the end of 2008, CCM reports the moderate portfolio composite performance but does not include the associated number of accounts.CCM reported the 2008 returns on its conservative composite as shown in Figure 1: Figure 1: CCM Conservative Composite Returns: Year Ending December 31, 2007 The data shown in Figure 2 relates to Moss portfolio transactions from the 2nd quarter of 2008. Figure 2: CCM Equity Returns for the Second Quarter of 2008Which of the following statements concerning CCM's performance presentation is most accurate1! According to GIPS standards:
Answer(s): A
Currently, GIPS verification is not required. This may change in the future. The verification process is central to the reliability of the GIPS. Normally, CCM must include the number of accounts in each composite. However, if the composite has five or fewer accounts, CCM is not required to disclose the number of accounts. The cash balance should be allocated across the other asset classes in reporting returns. (Study Session 18,LOS 49.t)
Arthur Campbell, CFA, is the founder of Campbell Capital Management (CCM), a money management firm focused solely on high net worth individuals. Campbell started CCM two years ago after a 25-year career with a large bank trust department. CCM provides portfolios tailored to match the unique situation of each individual client. All of CCM's clientele have balanced portfolios. CCM does not use derivatives or exotic instruments to manage any of its portfolios. CCM's equity style is defined as growth at a reasonable price (GARP). Most of CCM's portfolios are managed under one of the following three approaches:• Aggressive (10 accounts): 70% stocks and 30% bonds.• Moderate (4 accounts): 50% stocks and 50% bonds.• Conservative (25 accounts): 30% stocks and 70% bonds. CCM has recently added the following two clients:1. Harold Moss, a long-time acquaintance of Campbell. Campbell and Moss agreed to an investment policy statement in which Moss' portfolio will be managed under CCM's Aggressive approach but will have significantly greater exposure to technology stocks than a typical CCM aggressive portfolio.2. Richard Bateman is a successful businessman with a $5 million portfolio. Bateman wants his portfolio managed using a conservative approach, and he specifically states that no options or futures are to be used.A current client, Stan North, has decided to retire. North would like to reduce his risk exposure from aggressive to conservative. CCM moves North's account, including its historical performance, to the conservative composite.At the end of 2008, CCM reports the moderate portfolio composite performance but does not include the associated number of accounts.CCM reported the 2008 returns on its conservative composite as shown in Figure 1: Figure 1: CCM Conservative Composite Returns: Year Ending December 31, 2007 The data shown in Figure 2 relates to Moss portfolio transactions from the 2nd quarter of 2008. Figure 2: CCM Equity Returns for the Second Quarter of 2008 Based on Figure 1 and using the strategic asset allocation method, the annual return of the bond category for the conservative composite is closest to:
The 70% allocation to bonds represents the percentage of the $277,875,000 ($95,875,000 stocks +$182,000,000 bonds) that is invested in bonds. It does not consider the $47,125,000 in cash or the total portfolio value of $325,000,000. To determine the strategic return on the bonds, we must allocate cash to the bond category by using the actual allocation to bonds in the portfolio, assuming cash is part of the portfolio: allocation to bonds = total portfolio value x [strategic allocation - actual allocation= $325,000,000 x (0.70 - (182 / 325)) = $45,500,000The bond return calculation muse include the appropriate amount of cash. To determine the appropriate amount, the actual percentage amount is subtracted from the strategic percentage amount in bonds. This difference is multiplied by the total dollar amount of the portfolio. The cash dollar amount is used to calculate the weighted average return of cash and bonds. 7 he performance calculation represents the actual return for the bond portion of the portfolio. (Study Session 18, LOS 49.j)
Arthur Campbell, CFA, is the founder of Campbell Capital Management (CCM), a money management firm focused solely on high net worth individuals. Campbell started CCM two years ago after a 25-year career with a large bank trust department. CCM provides portfolios tailored to match the unique situation of each individual client. All of CCM's clientele have balanced portfolios. CCM does not use derivatives or exotic instruments to manage any of its portfolios. CCM's equity style is defined as growth at a reasonable price (GARP). Most of CCM's portfolios are managed under one of the following three approaches:• Aggressive (10 accounts): 70% stocks and 30% bonds.• Moderate (4 accounts): 50% stocks and 50% bonds.• Conservative (25 accounts): 30% stocks and 70% bonds. CCM has recently added the following two clients:1. Harold Moss, a long-time acquaintance of Campbell. Campbell and Moss agreed to an investment policy statement in which Moss' portfolio will be managed under CCM's Aggressive approach but will have significantly greater exposure to technology stocks than a typical CCM aggressive portfolio.2. Richard Bateman is a successful businessman with a $5 million portfolio. Bateman wants his portfolio managed using a conservative approach, and he specifically states that no options or futures are to be used.A current client, Stan North, has decided to retire. North would like to reduce his risk exposure from aggressive to conservative. CCM moves North's account, including its historical performance, to the conservative composite.At the end of 2008, CCM reports the moderate portfolio composite performance but does not include the associated number of accounts.CCM reported the 2008 returns on its conservative composite as shown in Figure 1: Figure 1: CCM Conservative Composite Returns: Year Ending December 31, 2007 The data shown in Figure 2 relates to Moss portfolio transactions from the 2nd quarter of 2008. Figure 2: CCM Equity Returns for the Second Quarter of 2008Based on Figure 2 and using the modified Dietz method, calculate the equity performance of the Moss portfolio for the second quarter of 2008.
GIPS now requires daily weighted cash flows in time-weighted total return calculations. The calculation for the modified Dietz method is as follows:Moss portfolio: inflows for 61 days of the total 91 day? (Study Session 18. LOS 49.0)
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