You invested $1 million a year ago in a balanced fund with target weights of 75% stocks, 20% bonds, and 5% cash. The fund uses the S&P 500 Index as the benchmark portfolio for equity investments and the Barclays domestic bond index for fixed income investments. Relevant performance information for the benchmark portfolio and your investment portfolio are shown below. Determine exactly what portion of your portfolios underperformance was due to security selection within asset classes, and what portion was due to asset allocation decisions on the part of the portfolio manager. In doing so, answer the following questions specifically:

1. What was the return on your portfolio?

2. What was the return on the benchmark portfolio?

3. What was the excess return on your portfolio (over or underperformance)

4. What was the contribution to the excess return of asset allocation decisions among stocks, bonds and cash?

5. What was the contribution to the excess return of security selection decisions within the asset classes?

6. Show a summary table demonstrating that the excesses return from asset allocation plus the excess return from security selection explains all of the excess return (over or under performance) of the portfolio.

7. Are you inclined to keep your money invested with this asset manager? What feedback would you offer to him/her following this first year performance?

	Benchmark Performance		Portfolio Performance
	Index Return	Weight	Return	Weight
Stocks	12.00%	75.0%	13.25%	60.0%
Bonds	2.00%	20.0%	2.25%	25.0%
Cash	0.10%	5.0%	0.10%	15.0%
		100.0%		100.0%