Performance Reporting & Benchmarking Flashcards
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Read the first 7 Performance Reporting & Benchmarking flashcards as text
The Sharpe ratio of a portfolio is calculated as which of the following?
Answer: (Portfolio Return – Risk-Free Rate) / Standard Deviation
The Sharpe ratio equals (Portfolio Return – Risk-Free Rate) / Standard Deviation, measuring excess return per unit of total volatility.
In investment performance attribution, 'alpha' most accurately refers to:
Answer: The excess return of a portfolio above what would be predicted by its level of systematic risk
Alpha represents the portion of a portfolio's return not explained by systematic risk (beta), indicating skill or luck in active management.
Which type of benchmark is most commonly used for domestic large-cap equity portfolios in the United States?
Answer: S&P 500 Index
The S&P 500 is the most widely used benchmark for domestic large-cap U.S. equity portfolios, representing the 500 largest publicly traded U.S. companies.
Performance attribution analysis is primarily used to:
Answer: Identify the sources of a portfolio's return relative to its benchmark
Performance attribution decomposes active return into components (e.g., allocation, selection, interaction) to explain why a portfolio outperformed or underperformed its benchmark.
The information ratio is best described as:
Answer: Active return divided by tracking error
The information ratio equals active return (portfolio return minus benchmark return) divided by tracking error (standard deviation of active returns), measuring consistency of outperformance.
Under GIPS, what is a 'carve-out'?
Answer: A portion of a multi-asset portfolio managed separately as a standalone segment
A carve-out is a subset of a larger portfolio representing a distinct investment strategy, which may be used in composites under specific GIPS conditions including that it must be managed with its own cash balance.
To initially claim GIPS compliance, a firm must present at minimum how many years of compliant performance history?
Answer: 5 years
Firms initially claiming GIPS compliance must present a minimum of 5 years of compliant performance, or since inception if less than 5 years, and then build toward a 10-year record.
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