The strategy’s active return represents the weighted average of the active returns of each component. To calculate the active return, subtract the expected market return from the expected returns of each strategy.
The large-cap manager has an estimated 13.8% return. Subtract the projected 12.7% market return, and the active return is 1.1%. For the small-cap strategy, the active return is 4.8%. The index fund is expected to earn the market return of 12.7%, for an active return of 0%. 1.1% × 30% + 4.8% × 10% + 0% × 60% = 0.81%. That’s the strategy’s expected active return
