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How does a fund measure performance?
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Should performance be considered when evaluating a fund?
Jul 30, 2020 · Morningstar analysts evaluate a fund's performance in the context of its strategy, and you should, too. When you select a fund, it's important to understand how it invests and what type...
- Treynor Ratio
- Sharpe Ratio
- Jensen's Alpha
- The Bottom Line
Jack L. Treynor was the first to provide investors with a composite measure of portfolio performance that also included risk. Treynor's objective was to find a performance measure that could apply to all investors regardless of their personal risk preferences. Treynor suggested that there were really two components of risk: the risk produced by flu...
The Sharpe ratio is almost identical to the Treynor measure, except that the risk measure is the standard deviation of the portfolio instead of considering only the systematic risk as represented by beta. Conceived by Bill Sharpe, this measure closely follows his work on the capital asset pricing model (CAPM) and, by extension, uses total risk to c...
Similar to the previous performance measures discussed, the Jensen measure is calculated using the CAPM. Named after its creator, Michael C. Jensen, the Jensen ratio calculates the excess return that a portfolio generates over its expected return. This measure of return is also known as alpha. The Jensen ratio measures how much of the portfolio's r...
Portfolio performance measures are a key factor in the investment decision. These tools provide the necessary information for investors to assess how effectively their money has been invested (or may be invested). Remember, portfolio returns are only part of the story. Without evaluating risk-adjusted returns, an investor cannot possibly see the wh...
- Troy Segal
- 2 min
Jul 4, 2023 · Portfolio performance evaluation is a critical process that helps investors and portfolio managers assess the effectiveness of their investment strategies by analyzing risk, return, and risk-adjusted performance.
- Some common key performance metrics used in portfolio performance evaluation include absolute return measures such as total return and compound ann...
- Selecting an appropriate benchmark is crucial for a meaningful performance evaluation. Investors should choose a benchmark with similar risk charac...
- Practical considerations during portfolio performance evaluation include ensuring data accuracy and quality, determining the appropriate frequency...
- Portfolio performance evaluation tools and techniques, such as software and platforms, portfolio analytics, and reporting and visualization, can he...
Jun 30, 2021 · Attribution analysis is a quantitative method for analyzing a fund manager's performance based on investment style, stock selection, and market timing.
May 1, 2020 · We review the major models of mutual fund performance: (1) using return data to evaluate equity funds—from single to multi-index models, (2) measuring passive portfolio performance, (3) using holdings-based performance measures, (4) measuring timing ability, and (5) measuring bond fund performance. We conclude with a discussion of issues ...
- Edwin J. Elton, Martin J. Gruber
- 2020
Apr 7, 2024 · A benchmark is a standard against which the performance of a security, mutual fund or investment manager can be measured.
But how do we evaluate the performance of a fund? In this blog post, we’ll unpack some of the key metrics used to measure and compare the effectiveness of funds. INTERNAL RATE OF RETURN (IRR) When it comes to assessing the performance of any investment, the Internal Rate of Return (IRR) is one of the most commonly used metrics.
