CFA III-Carve-Outs

ckylwy

Hi,
I read the books of CFA III but I don't understand what it means by Carve-Outs in GIPS. The book said that a carve out is a subset of portfolio's assets used to create a track record that reflects the performance of a specific asset class, e.g the equity component of a balanced portifolio).

Well... I don't understand that the equity component is carved out from the balanced portfolio to track the record of equity components of balanced portfolio? They are the same, right? It does not make sense to me. Therefore, would you explain what it means and show me another example?

Thank you so much.

lido

I remember exactly that note from the Scheweser notes.
My understanding is, (I dont guaruntee its correctness), that carve out is needed when the firm want to include all securities' performance under one asset category, even if some securites are not in a portfolio under that category. For eamaple,  to calculate growth stock index, also include a carve out part of global growth securites from a portfolio named "global -mid growth and mid value". here you can not include the whole portoflio, but you want to include part of it -the carve out.