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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers

A portfolio earned a return of 15% in a year while its benchmark returned 11%. The portfolio's beta against the benchmark is 1.0. What is the portfolio's excess return over the benchmark, commonly used to judge the manager's value addition?

The excess return is 4%. It is found by subtracting the benchmark return of 11% from the portfolio return of 15%. A positive difference shows the manager outperformed the benchmark during the period.

  1. A26%
  2. B4%Correct
  3. C-4%
  4. D1.36%

Explanation

Excess return = portfolio return - benchmark return = 15% - 11% = 4%. Reversing the sign gives -4%, which would mean underperformance. Adding the returns (26%) has no meaning. Dividing 15 by 11 gives a ratio of about 1.36, not the excess return in percentage points.

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