Practical Portfolio Performance Measurement and Attribution

ISBN-13: 9781119831945 / Angielski / Twarda / 2023 / 504 str.

Carl R. Bacon

Spis treści

ContentsAcknowledgementsContentsChapter 1 IntroductionThe Performance Measurement ProcessRole of performance analystsBook StructureChapter 2 The Asset Management IndustryAsset ClassesPublic EquitiesBonds (or Fixed Income)Cash (and near cash)Private AssetsReal EstatePrivate EquityPrivate DebtInfrastructureNatural ResourcesCommoditiesDerivativesFuturesForwardsSwapsContracts for Difference (CFD)OptionsOverlay StrategiesCurrencyHedge FundsAsset AllocationStrategic asset allocationTactical asset allocation.Chapter 3 The Mathematics of Portfolio ReturnSimple ReturnContinuously Compounded (or logarithmic) ReturnsMoney-weighted Returns (MWR)Internal Rate of Return (IRR)Ex-ante Internal Rate of ReturnSimple Internal Rate of ReturnEx-post Internal Rate of ReturnSimple DietzICAA MethodModified DietzTime-Weighted Returns (TWR)True Time-WeightedUnit Price MethodUnit Price Method with DistributionsTime-weighted versus Money-weighted Rates of ReturnApproximations to the Time Weighted ReturnIndex SubstitutionRegression Method (or b method)Analyst's TestHybrid MethodologiesLinked Modified DietzBAI Method (or linked IRR)Which method to use?Late Trading and Market TimingSelf-selectionLarge Cash FlowSelf-selection of methodologiesAnnualised ReturnsSince Inception Internal Rate of Return (SI-IRR)Modified IRR (MIRR)Return HiatusGross and net of fee calculationsEstimating gross and net of fee returnsInitial FeesPerformance FeesAsymmetric or SymmetricCrystallisationPerformance Fees in PracticeEqualizationReporting HierarchyOverlay StrategiesOverlay performance return calculations:Base currency and local returnsCurrency conversionsHedged ReturnsCurrency Overlay ReturnsPerfectly Hedged ReturnsPortfolio Component ReturnsMoney-weighted Component ReturnsEnd of dayBeginning of dayIntra-day weightedDifferentiatedActual TimeRule-basedExtremely large cash flowsWhich timing assumption to use for time-weighted returns?Carve OutsSub-portfoliosCash SectorsIndividual security returnsMulti-period component returnsAbnormal ReturnsShort PositionsContribution to returnComposite returnsChapter 4 BenchmarksBenchmarksBenchmark attributesThe Role of BenchmarksTypes of BenchmarksCommercial IndexesCalculation methodologiesAggregate Price Index (Price-weighted Index or Carli type)Geometric (or Jevons type) IndexMarket Capitalisation IndexLaspeyres IndexPaasche IndexMarshall - Edgeworth IndexFisher IndexEqual weighted IndexesFundamental IndexesOptimised Indexes (efficient or minimum variance indexes)Fixed Income IndexesIndex ProvidersChoice of Index ProviderBenchmark RegulationChoice of IndexCurrency Effects in BenchmarkHedged IndexesCustomised IndexesCapped IndexesPeer Groups and UniversesPercentile RankRandom PortfoliosExchange Traded Funds (ETFs)Target ReturnsBlended Benchmarks (or balanced benchmarks)Fixed Weight & Dynamised BenchmarksSpliced IndexesMoney-weighted Benchmarks (or public market equivalents)Normal PortfolioBenchmark StatisticsIndex TurnoverUp-capture IndicatorDown-capture IndicatorUp-number RatioDown-number RatioUp-percentage RatioDown-percentage RatioPercentage Gain RatioExcess returnArithmetic Excess ReturnGeometric Excess ReturnChapter 5 RiskDefinition of RiskRisk typesRisk management v Risk controlRisk aversionEx-post and ex-anteDescriptive StatisticsMean (or arithmetic mean)Mean absolute deviation (or mean deviation)VarianceBessel's correction (population or sample, n or n-1)Sample varianceStandard deviation (variability or volatility)Annualised risk (or time aggregation)The Central Limit TheoremFrequency and number of data pointsNormal (or Gaussian) distributionHistogramsSkewness (Fisher's or moment skewness)Sample skewnessKurtosis (Pearson's kurtosis)Excess kurtosis (or Fisher's kurtosis)Sample kurtosisBera-Jarque statistic (or Jarque-Bera)CovarianceSample covarianceCorrelation (r)Sample correlationPerformance appraisalSharpe ratio (reward to variability, Sharpe index)Roy ratioRisk-free rateAlternative Sharpe ratioRevised Sharpe ratioAdjusted Sharpe RatioSkew-adjusted Sharpe RatioRelative riskTracking error (or tracking risk, relative risk, active risk)Information ratioGeometric information ratioModified information ratioRegression analysisRegression equationRegression alphaRegression betaRegression epsilonCapital Asset Pricing Model (CAPM)Beta (b) (systematic risk or volatility)Jensen's alpha (Jensen's measure or Jensen's differential return or ex-post alpha)Annualised alphaBull beta (b+)Bear beta (b-)Beta timing ratioMarket timingSystematic riskCorrelationR²(or coefficient of determination)Specific (or residual) riskTreynor ratio (Reward to volatility)Appraisal ratio (or Treynor-Black ratio)Factor ModelsFama decompositionSelectivityDiversificationNet selectivityFama-French three factor modelThree factor alpha (or Fama-French alpha)Carhart four factor modelFour factor alpha (or Carhart's alpha)Multi-factor ModelsDrawdownAverage drawdownMaximum drawdownLargest individual drawdownRecovery time (or drawdown duration)Drawdown deviationUlcer indexPain indexCalmar ratio (or Drawdown ratio)MAR ratioSterling ratioSterling-Calmar ratioBurke ratioModified Burke ratioMartin ratio (or Ulcer performance index)Pain ratioPartial MomentsDownside risk (or semi-standard deviation)Downside potentialPure downside riskHalf variance (or semi-variance)Upside risk (or upside uncertainty)Mean absolute momentOmega ratio (W)Bernardo & Ledoit (or gain-loss) ratiod ratioOmega-Sharpe ratioSortino ratioReward to half-varianceDownside risk Sharpe ratioSortino-Satchell ratioKappa ratioUpside potential ratioVolatility skewnessVariability skewnessFarinelli-Tibiletti RatioProspect ratioFixed Income RiskPricing fixed income instrumentsRedemption yield (yield to maturity)Weighted average cash flowDuration (effective mean term, discounted mean term or volatility)Macaulay durationMacaulay-Weil durationModified durationPortfolio durationEffective duration (or option-adjusted duration)Duration to worstConvexityModified convexityEffective convexityPortfolio convexityBond returnsDuration betaReward to durationMiscellaneous Risk MeasuresHurst index (or Hurst exponent)Bias ratioActive ShareValue at Risk (VaR)Risk-adjusted returnM²M² excess returnDifferential returnAdjusted M²Skew-adjusted M²Types of Excess Return (or Alpha)A Periodic Table of Risk MeasuresPeriodic Table DesignWhy measure ex-post risk?Which risk measures to use?Hedge fundsSmoothingOutliersData miningTime PeriodChapter 6 Return Attribution 280What is Attribution?DefinitionAttribution as an asset management toolEarly DevelopmentTypes of Return AttributionReturns-based (regression or factor) AttributionHoldings-based (or buy/hold) AttributionTransaction-based AttributionArithmetic AttributionBrinson, Hood & BeebowerAsset AllocationSecurity (or Stock) SelectionInteractionBrinson & FachlerInteractionGeometric Excess Return AttributionAsset allocationStock selectionSector WeightsFrequency of AnalysisSecurity Level AttributionTransaction costsOff-benchmark (or zero weight sector) attributionAttribution consistent with the Investment Decision ProcessMarket Neutral AttributionAttribution for 130/30 funds (or extended short funds)Leverage (or gearing)Attribution including derivativesAttribution including Equity Index FuturesAttribution Analysis using optionsMulti-currency attributionAnkrim & HenselKarnosky & SingerGeometric Multi-Currency AttributionNaïve Currency AttributionCompounding effectsGeometric Currency AllocationCurrency TimingInterest Rate DifferentialsRevised Currency AllocationRevised Country AllocationIncorporating Forward Currency ContractsSummarisingOther Currency IssuesFixed Income AttributionThe Yield CurveYield curve analysisShiftTwist (or slope)Curvature (or butterfly)CarryCredit (or spread)Yield Curve DecompositionWagner & TitoWeighted Duration AttributionGeometric Fixed Income AttributionCampisi FrameworkYield Curve DecompositionMulti-period attributionSmoothing AlgorithmsCarinoMencheroLinking AlgorithmsGRAP MethodFrongelloDavies & LakerMulti-period Geometric AttributionAnnualisation of Excess ReturnAttribution AnnualisationContribution Analysis (or absolute return attribution)Risk-adjusted AttributionSelectivityMulti-level AttributionBalanced attributionEvolution of performance attribution methodologiesChapter 7 Performance Presentation StandardsWhy do we need performance presentation standards?Global Investment Performance Standards (GIPS(r)) - A historyAdvantages for Asset ManagersThe GIPS StandardsFundamentals of ComplianceDefinition of the FirmMaintaining Policies and ProceduresProviding GIPS ReportsBenchmark SelectionCorrecting Errors in GIPS ReportsComposite DescriptionsRecordkeepingLinking of theoretical and actual performancePortabilityUse of time-weighted or money-weighted returnsClaiming Compliance with the GIPS standards.Input Data and Calculation MethodologyFirm Assets, Composite Assets and Pooled Fund AssetsOverlay ExposureReturnsValuationTime-Weighted ReturnsMoney-weighted ReturnsNet ReturnsComposite ReturnsPrivate Market InvestmentsReal EstateNet-of-fee Carve-outs returnsWrap fee, side pockets and subscription lines of creditComposite and Pooled Fund MaintenanceComposite MaintenanceCarve-OutsPresentation and ReportingComposite Time-weighted Return ReportReturns, Dispersion & RiskUnobservable inputs, gross or net-of-fees, multiple benchmarks, breaks in performance, carve-outs and non-fee-paying portfoliosCommitted Capital and Advisory AssetsReporting currency, carve-outs, overlay strategies, wrap fees and supplemental informationComposite Money-weighted ReportsComposite Cumulative Committed CapitalTotal Value to Since-inception Paid in Capital (TVPI or Multiple of Investment Capital (MOIC) or Investment Multiple)Since-inception Distributions to Since-inception Paid-in Capital (Realisation multiple or DPI)Since-inception Paid-in Capital to cumulative Committed Capital (PIC Multiple)Residual Value to since-Inception Paid-in Capital (Unrealised Multiple or RVPI)DisclosuresClaim of ComplianceFirm, composite and benchmark definitionsFee disclosuresInception date, creation date, composite lists availability of policies and procedures, leverage and estimated transaction costs.Significant events, redefinition, minimum asset levels and withholding taxConflicts with regulation, carve-out disclosures & sub-advisors.Benchmark DisclosuresSignificant cash flow disclosure and material errors.Risk measures, overlay strategy, real estate valuation and theoretical performance disclosures.Sample GIPS Composite ReportGIPS Advertising GuidelinesFundamental requirements of the GIPS Advertising GuidelinesGIPS Advertisements that do not include performance.GIPS advertisements for compositesGIPS Advertisements for a Broad Distribution Pooled FundVerificationPerformance ExaminationAchieving ComplianceMaintaining ComplianceGIPS Standards for Asset OwnersChapter 8 Bringing it all togetherEffective dashboardsData visualisation toolsManager SelectionAsset Manager SelectionManager EvaluationPortfolio EvaluationMonitoring and ControlThe Four Dimensions of PerformanceEx-post Return (The traditional dimension)Ex-post Risk (The neglected dimension)Ex-ante Return (The unknown dimension)Ex-ante Risk (The "sexy" dimension)Risk efficiency ratioPerformance efficiencyRisk control structureRisk managementGlossary of Key TermsAppendix A - Simple AttributionAppendix B - Multi-Currency Attribution MethodologyBibliographyIndex

O autorze

CARL R. BACON, CIPM, is Chief Advisor to Confluence. He is a member of the Advisory Board of the Journal of Performance Measurement and Founder of The Freedom Index Company. He is the former Chairman of StatPro plc, Director of Risk Control and Performance at Foreign & Colonial Management Ltd and Vice President Head of Performance (Europe) for JP Morgan Investment Management Inc.