Portfolio performance

benchmarks
1. establish long-term neutral position of portfolio
2. overweight (if positive)
3. underweight (if negative)
4. comparison - to evaluate performance of manager
Sharpe ratio
1. limitations
  1. incorporates performance of underlying markets
  2. assumes volatility is an appropriate measure of risk
  3. assumes SD normal distributions
    1. skew / kurtosis
    2. could underestimate risk of poor returns
2. higher is better
3. longer time-frame is better
4. a measure of risk-adjusted returns
5. looks at return over and above risk-free rate in units of SD
alternative investments
1. diversification
  1. 2008:alternative assets fell broadly in line with equities
2. imperfect correlation with equities, bonds & cash
  1. smooths overall returns
3. commercial property
  1. higher income than equities
  2. inflation hedge
4. absolute return
  1. perform better than long-only when markets are weak
  2. 2008: still did not achieve positive returns
  3. generally deliver low but positive returns
  4. onshore
    1. regulated
      1. investor protection
    2. more transparent
    3. UCITS III
      1. able to adopt some but not all hedge fund strategies
        leverage and shorting using derivatives
        overall risk restrictions
      2. must retain liquidity for redemptions
  5. absolute vs relative return
  6. trade at NAV
5. liquidity issues (2008)
  1. commercial property
    1. suspended redemptions
    2. discounts to NAV
  2. hedge funds
    1. defer payouts
    2. 'gates' limiting outflows
    3. 'side pockets' to hold illiquid securities
6. FOHF
  1. fees to FOFH manager
  2. can trade at discount to NAV
passive investment / ETF
1. advantages
  1. major markets are largely efficient
    1. difficult to consistetly outperform via active management
  2. majority of active funds fail to outperform index over medium/long term
  3. low buying / running costs
    1. lower TERs than active funds
  4. ETFs trade throughout market opening hours
  5. total return swaps tax advantage over dividend paying funds
    1. counterparty risk
  6. no stamp duty on ETFs
  7. exposure to wide range of indices / assets
    1. leverage
    2. inverse indices
2. types
  1. physical assets
  2. derivatives
    1. counterparty risk

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Portfolio performance

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	Created by Paul Dawson over 10 years ago