You have been asked to evaluate returns from your commercial real estate investment fund (Bluestone Fund) against an industry benchmark index to determine how successful your active investment strategy has been. Specifically, a potential client wants you to compare the performance of your portfolio strategy against a passive strategy of simply investing based on the same proportions of properties and locations comprising the index. During the most current quarter, the following information has been provided to you based on property type and location:

A.

B.

a. Use the Brinson-Hood-Beebower (BHB) approach to calculate the extent to which the Bluestone Fund is over- or (under)weighted by property type relative to the industry index.
b. Use the Brinson-Hood-Beebower (BHB) approach to calculate the extent to which the Bluestone Fund is over- or (under)weighted by location/region relative to the industry index.
c. To what extent was the performance by Bluestone attributable to property selection versus allocation in (a)?
d. To what extent was the performance by Bluestone attributable to property selection versus allocation in (b)?
e. Use the Brinson-Fachler (BF) approach to calculate how Bluestone Funds return differed from the industry index due to differences in allocation by property type. Which property sectors seemed to help or hurt the fund's performance?
f. Use the Brinson-Fachler (BF) approach to calculate how Bluestone Funds return differed from the industry index due to differences in allocation by location. Which location sectors seemed to help or hurt the fund's performance?
g. Suppose Bluestone Funds had a beta of 1.25 for their properties in the apartment sector. The beta for the industry index is 1.0. Would Bluestone still have outperformed the industry index in the apartment sector? Assume the risk-free rate is 1 percent.

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Property Type Apartments Hotel Industrial Office Retail Total Bluestone Fund % of Fund Value 20% 0 5 35 40 100.0 Return 14.0% 16.0 10.0 4.0 10.0 - Weighted Return 2.8% 0.0 0.5 1.4 4.0 8.7 % of Index Value 35% 10 30 10 15 100.0 Industry Index Return 12% 14 00 6000 | 8 8 - Weighted Return 4.2% 1.4 2.4 0.6 1.2 9.8