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Performance Evaluation

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tavita
10 diapositives · 281 Views · Oct 15, 2014

This comprehensive analysis evaluates the performance of 14 international and 19 U.S. mutual funds using various metrics, including traditional measures like CAPM and Jensen’s Alpha, and innovative Graham-Harvey measures. By utilizing the MSCI World and MSCI US as benchmarks, we uncover critical insights into fund management performance. The study reveals that a significant number of fund managers underperform compared to these benchmarks, emphasizing the importance of understanding nuances in performance measures and questioning the effectiveness of traditional metrics versus advanced techniques.

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Performance Evaluation
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  1. Performance Evaluation Universal Investments: Christian Delay Noppaporn Supmonchai Tassanee Ratanaruangrai Juan Sandoval International Investments Professor Cam Harvey Assignment 1 February 26, 1998

  2. Issues • Use different performance mearsures to gain insight • Determine state of asset management in terms of performance • How are fund managers performing?? Are fund managers getting a free lunch???

  3. Approach • Analyzed 14 International & 19 U.S. Mutual funds • Establish MSCI World or MSCI US as benchmark • Calculate traditional measures • Mean-variance analysis, CAPM, Beta, Jensen’s Alpha, Treynor Index • Calculate Graham-Harvey measures • GH1 & GH2 • Discuss results and conclusions

  4. Traditional measure results What if fund has lower return AND lower volatility? Inherent shortfalls reside in traditional measures 2 of 14 funds “beat” MSCI World

  5. Traditional measures • Beta: picks up the average level of market exposure • Alpha: represents the extra return over and above a position with average market exposure • Weaknesses: • MSCI benchmark portfolio has different volatility (risk) than each mutual fund • Sharpe ratio difficult to evaluate without reference point • No ability to predict future performance based on the past

  6. Graham-Harvey Performance Metrics • GH1 • Levers up/down the MSCI World to match each international mutual fund’s volatility • Determine if fund lies above or below a constructed frontier • GH2 • Levers up/down the international mutual fund to match the volatility of the benchmark • Assumes investor has ability to lever an investment

  7. Graham-Harvey Performance Metrics • GH1

  8. Graham-Harvey Results GH1 GH2 Similar results: 2 of 14 “beat” MSCI World using GH1 and GH2

  9. Traditional vs. GH* • Controlling for risk is often overlooked • GH deems outperformers as underperformers • Sharpe vs. GH • GH does better job in pinpointing genuine ability • GH negative score bad, positive score good • CAPM vs. GH • GH does better job with fund volatility

  10. Conclusions • Important to know nuances of performance measures • Fund managers consistently under-perform benchmarks • State of Fund Mgmt in poor shape in terms of performance • Fund managers are eating your lunch!!!