1 / 12

Evaluating Portfolio Performance

Evaluating Portfolio Performance. Ch.20b. Universe Comparison. Divide performance of all active managers in the same category (e.g., Canadian equity) into quartiles. . Performance Attribution Analysis. For managers that are benchmarked

edison
Download Presentation

Evaluating Portfolio Performance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Evaluating Portfolio Performance Ch.20b

  2. Universe Comparison Divide performance of all active managers in the same category (e.g., Canadian equity) into quartiles.

  3. Performance Attribution Analysis • For managers that are benchmarked • Identify sources of relative return: Where did the superior/inferior performance come from? • Can attribute a portfolio’s relative return, rP - rB, to: • Manager’s ability in asset allocation • Ability in sector selection within an asset class • Ability in stock selection within a sector

  4. Performance Attribution Analysis • Let rBi be the return on the ith asset class in the benchmark (e.g. i = equities or bonds) • Let wBi be the weight of the ith asset class in the benchmark, B: • Therefore: • Similarly, for the manager’s portfolio, P:

  5. Example of a benchmark for multi asset class portfolios • Harvard Endowment Fund: The Policy Portfolio... serves as a measuring stick against which we judge the success of our active investment management activities.

  6. Performance Attribution Analysis • The manager’s active return, rP- rB, can be written as: where “i” is an asset class (e.g., equity, fixed income...etc.) • With some manipulation, can be re-written as: Active return due to asset allocation Active return due to security selection within an asset class

  7. Numerical Example Number to be used later Total contribution, rP– rB, is 0.3099% + 1.06% = 1.3699%

  8. Graphical Representation • Provide graph rather than table to clients: Contribution to Relative Return Percent Total portfolio Asset allocation Security selection

  9. Performance Attribution Analysis • Security selection comes from: • Sector selection and • Stock selection within each sector • Can further divide performance into these two categories • Sector selection: • Source of relative return: From over-/under-weighting certain sectors relative to the benchmark

  10. Sector Selection If sector return is high, but you under-weighed that sector  contributed negatively Contribution from stock selection within a sector is: 1.47% – 1.0076% = 0.4624%

  11. Graphical representation • If both numbers are positive, can use a pie chart; else, use bar chart

  12. Chapter 20 • Can exclude pp.729-746

More Related