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FRM Part II · FRM Exam Part II · Portfolio Performance Evaluation

A consultant uses rolling 36-month style analysis on a manager and finds the style weights shifting from 70% value / 30% growth to 30% value / 70% growth over two years, though the manager's stated mandate is value. Which conclusion is most appropriate?

The shift indicates style drift away from the stated value mandate. The evaluator should review mandate compliance and whether the fixed value benchmark remains appropriate, since style changes do not by themselves show skill or luck.

  1. AThe manager shows style drift, so the fixed value benchmark may no longer be appropriate and the mandate compliance should be reviewedCorrect
  2. BThe manager is demonstrating superior skill because style changes always add alpha
  3. CThe results are invalid because style analysis cannot be performed on rolling windows
  4. DThe shift proves the manager's returns were due solely to luck

Explanation

Rolling style analysis is used to detect style drift. A move from value to growth contradicts the stated mandate, so the evaluator should question the benchmark choice and check compliance. Style changes do not automatically add alpha, and rolling windows are a standard technique.

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