MASTER OF SCIENCE IN FINANCE (MSF)

ONLINE PROGRAM
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Unit 6: Performance Evaluation
Deliverables
Although it is recommend that you do these exercises individually, you may do them as part of a group.
You may turn in your results as PowerPoint Files. Be prepared to present any and all of your results to
the class.
Part I: Unilever Superannuation Fund v. Merrill Lynch
In this case, Unilever has sued its investment manager, Merrill Lynch, as a result of subpar investment
performance in Unilevers UK pension fund. Prepare TWO 5-10 minute PowerPoint presentations, one
to argue each side of the case. Present quantitative information from the case to support your argument.
Dont forget to look at the exhibits in the case and the spreadsheet supplement.
One point to consider: If the portfolio manager expects to outperform the benchmark by 1%, and the
active risk (standard deviation of tracking error) is 6%, what is the likelihood that the fund will
underperform the benchmark by 3% or more?
Also be prepared to discuss what you would have done differently if you had been Unilever or
Mercury/Merrill.

Part II: Performance presentation

For Unit 1, you created a portfolio to implement a particular investment strategy. For this week, you will
construct a 5-10 minute presentation to the class with the following information:
a. Overall investment strategy. Why did you choose the securities that you did?
b. What is the appropriate benchmark for your portfolio? Part of this exercise is for you to examine
various benchmarks and figure out which one is most reflective of the original investment
mandate or strategy. There are literally thousands of indices to choose from. U.S. equity
portfolios are typically benchmarked against the S&P 500 or Wilshire 5000 indices, while smallcap portfolios are often benchmarked against the Russell 2000 index. However, a different
benchmark might be appropriate given your strategy. Popular international benchmarks include
the MSCI EAFE (Europe, Australasia, and Far East) and MSCI World indices. Popular hedge
fund indices include the HFRX, Barclays, and Morningstar indices.
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c. What was the overall performance of the strategy relative to the benchmark?
a. Include the following performance measures:
i. Your return versus the benchmark return
ii. Sharpe ratio
iii. Information ratio
iv. Jensens Alpha
v. Treynors measure
d. What went right and what went wrong in your portfolio?
Include a performance report in conformance with the industry standard CFA Institutes Global
Investment Performance Standards (GIPS). Assume that you had $100 million at the beginning of
the period. (For details, see below.)
e. What lessons have you learned in this course that will help you make better investment decisions?
More details on the CFA GIPS report:
The CFA Institutes Global Investment Performance Standards (GIPS) provide a standard method for
presenting investment performance. The standards require the disclosure of certain information and
require that certain methods be used. In brief, the standards require that a firm present the combined
performance of all of its discretionary, fee paying accounts into one or more composites that are weighted
by the assets under management at the beginning of the period. Other points of the standards are:
Returns for periods less than one year must NOT be annualized.
Performance across time periods must be geometrically linked.
A few hints:
My advice is to start with a sample GIPS report as your template. One can be found in the appendix
(page 46) of the CFA Institutes official standards
(http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2010.n5.1 ).
Since you will only have one portfolio in your composite, your internal dispersion is zero. Likewise, as
you only have a few weeks of data, your three year standard deviations are unavailable and can be
omitted.
Note that you will have only one composite.
Dont forget to include the footnotes for the GIPS report. They are an important part of the report. Each
footnote in the GIPS report is required, as in accounting footnotes, because it is possible to play some
kind of game with that particular bit of information.
See http://www.gipsstandards.org/standards/current/Pages/2010EditionGIPS.aspx and
http://www.cfainstitute.org/ethics/codes/gipsstandards/Pages/index.aspx for more details on the GIPS
standards.

Part III: Insider Trading Quiz

The Insider Trading Quiz is located in your course pack. Be prepared to discuss in class what you would
do in each of the situations in the quiz.