Please enable JavaScript.
Coggle requires JavaScript to display documents.
Performance evaluation (Appraisal (Sharpe ratio, Treynor ratio
for well…
Performance evaluation
Portfolio performance
Measurement
- absolute return
- excess return
Attribution
- how that performance was achieved or how risk was incurred
- explain absolute/relative return
- decompose excess return and risk
-
-
Micro attribution = understanding the drivers of a manager returns and assess if consistent with stated process
-
Evaluation
- draw conclusions regarding the quality of performance
- distinguish manager luck from skill
Approaches
Equity attribution
Brinson model
- Allocation = (Port weight - Bench weight)x(Return of group - Return bench)
- Security (Return port - return bench)xBench weight
- Interaction (Port weight - Bench weight)(Return port - Return bench)
Factor based
- decompose contributions to excess returns from factors
Carhort 4-factor model
- market, size, value, momentum
- Active return = Factor tilt returns + Active selection
Fixed income attribution
Exposure decomposition (top-down approach)
- active bets on duration, YC and sector
- used for client reporting
Yield curve decomposition (bottom-up approach)
- duration based
- top or bottom up used for analyst and PMs
- uses estimates the return based on duration
- total return = income return + price change + residual
Yield curve decomposition - Full repricing
- prices each security therefore complicated
Risk attribution
- absolute = identify source of volatility
- benchmark relative = identify source of tracking risk
-
Macro attribution
- Decision 1 => deviations from SAA
- Decision 2 => selection of investment managers
Benchmarks
Market index
- represent the performance of a specific security market, segment and asset clas
Liability based
- focus on the CFs the assets must generate
- track fund progress towards fully funded status or track the performance of assets relative to the change in liabilities
Asset based benchmark
- umambiguous
- investable
- measurable
- appropriate
- reflective of current investment opinions
- specified in advance
- accountable
-
-
-
-
-
-
Bench for AI
HF
- risk free plus spread
- used a manager universe
Real estate
- numerous indexes available
- limitations as appraisal based (smoothed)
PE
- peer group benchmarks
- valuation methodologies may differ
Commodity
- index based on future based
- vary in weighting
Appraisal
-
Treynor ratio
- for well diversified portfolios
-
Sortino Ratio
- assess returns that are not symmetrical
- suitable for HFs and commodity trading funds
-
Capture ratio
- measure PM participation in up/down markets
Drawdown
- MaxDD = peak to trough loss
- Drawdown duration = total time from drawdown to recovery