Help me

NSG Asset Management has suffered the withdrawal of significant volumes of assets under management in its flagship fund over the last three years due to perceived poor performance. The flagship fund is managed by three portfolio managers, one responsible for equities, one for fixed income and one for making asset allocation decisions. The senior management of NSG Asset Management has brought in a consultant to identify where improvements could be made. NSG has provided the consultant with the following information: Year I Year 2 Start value Fund Sector Fund Sector (5m) return return return return Emerging market equities 40 10% 11% 9% 9% Small cap equities 55 12% 9% 14% 12% Large cap equities 30 6% 6% 7% 7% Corporate bonds 35 8% 8% 5% 7% Government bonds 30 -3% 0% 1% 6% Cash 10 0% 0% 1% 1% Note: The overall benchmark is calculated as an equal fixed weight to all asset classes (excluding cash) within the fund. The benchmark is rebalanced annually. A disinvestment of $60m was made at the end of the first year. The asset allocation portfolio manager decided $18m should be taken from bonds and $42m from equities. Assume equal disinvestment within the sub-classes of equities and bonds. (i) Calculate for the total period, showing all your workings, the value added from: . stock selection for equities. [5] . stock selection for bonds. [5] sector asset allocation (between equities and bonds, but NOT the sub- classes within equities and bonds). [5] . total performance of the fund relative to the benchmark. [2] (ii) Explain, with reasons, the action the consultant is likely to recommend to the senior management of NSG. [4] [Total 21]The trustees of a pension fund are conducting their regular review of a fund manager's performance. The fund is invested in domestic equities. Amongst other things they have been supplied with the following data: Review period (years) 3 5 Fund return p.a. (net of fees) -11.01% 2.06% 5.16% Index return p.a. -9.73% 2.30% 5.06% Tracking Error 2.16% 1.15% 0.88% (1) Describe the key features of these results. [2] (ii) State what other information you would require in order to make a decision regarding whether the fund manager should be retained. [6] A newly appointed trustee has proposed switching the funds to a fund manager who specialises in newly emerging stock markets as she has heard that these markets have shown strong growth recently. (iii) Comment on this proposal. [3] (iv) Suggest what problems might be encountered if it were adopted. [3] [Total 14]