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Performance Monitoring

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Brian Jenkins Pei Lu Shen

on 17 October 2013

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Transcript of Performance Monitoring

Performance Monitoring
Asset Allocation
Portfolio Construction
Establishment of Goals and Objectives
Investment Consulting
Overview of the four stages of investment consulting


Allocation of Investments Between Asset Classes

Define asset allocation
1. Statistical distribution of asset class returns
2. Different degrees of risk tolerance

Asset Allocation – Process Overview

Asset Class Selection

An asset class is a good candidate if it provides:
- Risk-adjusted returns
- Unique risk or return characteristics
- Sufficiently accessible
- Does not over complicate the portfolio

Asset Allocation – Investment between Asset Classes




Process for Manager Selection

1. Qualitative research and due diligence

2. Evaluation of portfolio characteristics

3. Modern portfolio theory statistical analysis

4. Returns-based style analysis

5. Validation of manager blend

Deciding an appropriate risk level:

- Deep Value

- Relative Value

- Growth-At-A-Reasonable-Price

Choosing an investment framework:

- Active management
- Managed account

- Passive management
- Non-managed account
- ETFs

- Core/Satellite

Role of Asset Classes/Styles

Manager Selection

Implementation Approach

Portfolio Construction – Implementation Process

Popular investment choices:
Index funds

Management quality
Portfolio turnover
Operational expenses
Asset bloat

Outperform a benchmark
risk control

"Core" - passive managed investments

"Satellite" - active managed investments

Enhanced returns
Reduced volatility
Access to less efficient and more illiquid markets and securities

Underperformance at higher costs

Passive Management


Active Management

- Clearly defined fee-based product
- Wealth planning services with focus on long-term growth
- Fees paid for the management of non-registered investments may be fully tax-deductible

- Commission-based product
- Ability to work with the financial advisor to make daily trades

- Offered to complex HNW accounts only
- Offered a personal relationship with the portfolio manager
- Freedom to make day-to-day investment decisions
- Tax planning strategies offered

- Wealth managed by external portfolio managers that are selected through a rigorous selection process
- The firm performs ongoing due diligence on the external managers
- One inclusive management fee

Fee based non-discretionary accounts

Transactional based accounts

Privately managed accounts

External Investment Advisor managed accounts

Non-Managed / Non-Discretionary

Managed / Discretionary


Program Types

- Wealth managed by the firm’s internal portfolio managers
- Dedicated internal research team
- Clients have the freedom to delegate day-to-day investment decisions
- Comprehensive reporting with monthly statements, quarterly performance reports and year-end reports

Internal Investment Advisors managed accounts

Portfolio Construction – Program Type

Portfolio Construction - Role of Asset Classes/Styles

Presentation title


- Performance measurement is a process of review of an investors account performance juxtaposed with their initial strategic asset allocation and risk preferences. Upon review, a rebalancing of the portfolio may be deemed necessary for a number of reasons.

- It is important for an investor to evaluate various differentiators when reviewing a client's portfolio, such as:
1. Value v. Growth
2. Large Cap v. Mid Cap v. Small Cap
3. Domestic v. International
4. Traditional Investments v. Alternative Investments
5. Stocks v. Bonds v. Cash

Performance Measurement

Determine Investment Parameters
Investment Restrictions
Performance Objective
Cash Flow Needs
Time Horizon
Risk Tolerance
Sample Portfolio
Deep Value Managers
Relative Value Managers
Deep value managers generally seek companies that are selling at considerably reduced valuations, often trading at a discount to book value
Relative value managers generally analyze companies’ valuations relative to the market, industry and historical norms to determine a stock’s “fair value.”
Grow at a Reasonable Price (GARP) managers look for companies that exhibit sustainable earnings growth and trade at reasonable valuations
Portfolio Construction - Manager Selection Process

Four key areas:
Number of holdings
Turnover rate
Security and sector weightings
Earnings per share and EPS growth
Sales and sales growth
Dividend Yield
Market Capitalization
Key statistics:
Standard deviation
Upside and downside capture ratio
Information Ratio
Tracking Error
Cumulative and rolling-period returns
Analysis used to:
Evaluate a manager's style
Identify style changes over time
A review to ensure tat the portfolio is well diversified and will not expose the investors to more risk than intended. Goals include:
Determine portfolio does not stray from allocation strategy
No undesired overlaps or concentrations
Full transcript