The Complete Guide to Portfolio Performance E-Book

Pascal Francois

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 1834

Veröffentlichungsjahr: 2024

Beschreibung

An intuitive and effective desk reference for performance measurement in asset and wealth management In The Complete Guide to Portfolio Performance: Appraise, Analyse, Act, a team of finance professors with extended practical experience deliver a hands-on desk reference for asset and wealth managers suitable for everyday use. Intuitively organized and full of concrete examples of the real-world implementation of the concepts discussed within, the book provides a comprehensive coverage of all important portfolio performance matters across 18 chapters of actionable and clearly described content. The authors have provided relevant cross-referencing where appropriate, "Key Takeaways and Equations" sections at the end of each chapter, and pointers to additional resources for anyone interested in pursuing further research. You'll also find: * Discussions of more than a hundred classical and modern performance measures organized logically and with a focus on their applications * Strategies for selecting appropriate performance measures based on your situation as a manager or investor * Explanations of analytical techniques (statistical approaches, attribution, fund ratings...) enabling a comprehensive use of performance-related information * Applications of portfolio performance criteria in concrete investment decision-making processes * Highly actionable and logically organized material that's easy to find at a moment's notice * A full set of pedagogical powerpoint slides and excel worksheets with all data and formulas Perfect for investors, portfolio managers, advisors, analysts, and regulators, The Complete Guide to Portfolio Performance is also a must-read reference for students and practitioners of asset and wealth management, as well as those pursuing certification such as CFA, CIPM, CIIA, and CAIA.

Leseprobe

Table of Contents

Cover

Table of Contents

Title Page

Copyright

Dedication

Preface

WHY THIS BOOK?

WHO IS THIS FOR?

HOW TO READ IT?

Acknowledgements

About the Website

CHAPTER 1: The Scope of Portfolio Performance

INTRODUCTION

1.1 FROM PORTFOLIO MANAGEMENT TO PORTFOLIO PERFORMANCE

1.2 ROLLING OUT THE THREE LAYERS OF PERFORMANCE EVALUATION

1.3 RETURNS, RISK, AND BENCHMARKS

REFERENCES

NOTES

PART I - Appraise (1/2): CLASSICAL PERFORMANCE MEASUREMENT

CHAPTER 2: Standard Portfolio Theory and the CAPM

INTRODUCTION

2.1 THE PORTFOLIO ALLOCATION PROBLEM

2.2 THE MARKET PORTFOLIO AND THE SECURITY MARKET LINE

2.3 IMPLEMENTING THE CAPM

2.4 MULTIFACTOR MODELS

REFERENCES

NOTES

CHAPTER 3: Classical Portfolio Performance Measures

INTRODUCTION

3.1 PEER GROUP COMPARISONS

3.2 THE SHARPE RATIO

3.3 THE TREYNOR RATIO, JENSEN'S ALPHA, AND THE MODIFIED JENSEN'S ALPHA

3.4 THE INFORMATION RATIO

REFERENCES

NOTES

CHAPTER 4: Selecting a Classical Performance Measure

INTRODUCTION

4.1 RISK AND MEASUREMENT DIMENSIONS

4.2 CHOOSING A MEASURE FOR THE INVESTOR: THE NORMATIVE APPROACH

4.3 CHOOSING A MEASURE FOR THE INVESTOR: THE POSITIVE APPROACH

4.4 CHOOSING A MEASURE FOR THE MANAGER

REFERENCES

NOTES

CHAPTER 5: Pitfalls and Dangers with the Classical Performance Measures

INTRODUCTION

5.1 ISSUES WITH THE STANDARD PORTFOLIO THEORY FRAMEWORK

5.2 ISSUES WITH THE CAPITAL ASSET PRICING MODEL

5.3 ISSUES WITH THE SAMPLE

5.4 ISSUES WITH THE REGRESSIONS

5.5 ISSUES WITH THE INTERPRETATIONS

REFERENCES

NOTES

PART II - Appraise (2/2): DEVELOPMENTS IN PERFORMANCE MEASUREMENT

CHAPTER 6: The Classical Performance Measures Revisited

INTRODUCTION

6.1 REFINEMENTS OF THE SHARPE RATIO

6.2 ALTERATIONS OF THE SHARPE RATIO

6.3 ALTERNATIVE VERSIONS OF THE OTHER CLASSICAL PERFORMANCE MEASURES

6.4 CLASSICAL PERFORMANCE MEASURES AS RISK-ADJUSTED RETURNS

REFERENCES

NOTES

CHAPTER 7: Performance Measurement in Multifactor Models

INTRODUCTION

7.1 TYPES OF LINEAR MULTIFACTOR MODELS

7.2 THE MULTIFACTOR ALPHA AND THE MULTIFACTOR MODIFIED ALPHA

7.3 OTHER CLASSICAL PERFORMANCE MEASURES ADAPTED TO MULTIFACTOR MODELS

7.4 MEASURING PERFORMANCE IN SPECIAL CASES OF MULTIFACTOR MODELS

REFERENCES

NOTES

CHAPTER 8: Performance Measurement with Market Timing

INTRODUCTION

8.1 PIECEWISE-LINEAR REGRESSION APPROACH

8.2 POLYNOMIAL REGRESSION APPROACH

8.3 RETURN-BASED DYNAMIC EXPOSURES APPROACH

8.4 HOLDING-BASED DYNAMIC EXPOSURES APPROACH

8.5 A ROADMAP FOR MARKET TIMING PERFORMANCE APPRAISAL

REFERENCES

NOTES

CHAPTER 9: Preference-based Performance for the Standard Investor

INTRODUCTION

9.1 THE STRUCTURE OF THE RATIONAL INVESTOR'S PREFERENCES

9.2 PREFERENCE-BASED PERFORMANCE IN THE STANDARD PORTFOLIO THEORY

9.3 PERFORMANCE MEASUREMENT WITH STANDARD UTILITY FUNCTIONS

REFERENCES

NOTES

CHAPTER 10: Preference-based Performance for the Behavioral Investor

INTRODUCTION

10.1 THE STRUCTURE OF THE BEHAVIORAL INVESTOR'S PREFERENCES

10.2 PERFORMANCE MEASUREMENT WITH BEHAVIORAL UTILITY

10.3 PERFORMANCE AS RATIOS OF GAINS OVER LOSSES

10.4 MENTAL ACCOUNTING AND PORTFOLIO PERFORMANCE

REFERENCES

NOTES

PART III - Analyze: ANALYZING AND MONITORING PERFORMANCE

CHAPTER 11: Navigating the Maze of Portfolio Performance

INTRODUCTION

11.1 THE SPECTRUM OF PERFORMANCE MEASUREMENT

11.2 ARIADNE'S STRING TAXONOMY

11.3 ANALYTICAL SORTING APPROACHES

11.4 STATISTICAL SORTING APPROACHES

11.5 DASHBOARD

REFERENCES

NOTES

CHAPTER 12: Performance Design for Specific Asset Classes

INTRODUCTION

12.1 FIXED-INCOME PORTFOLIO RETURNS

12.2 PERFORMANCE FRAMEWORK FOR FIXED-INCOME PORTFOLIOS

12.3 ILLIQUID ALTERNATIVE INVESTMENT PORTFOLIO RETURNS

12.4 PERFORMANCE FRAMEWORK FOR HEDGE FUNDS

12.5 PERFORMANCE FRAMEWORK FOR PRIVATE EQUITY

REFERENCES

NOTES

CHAPTER 13: The Granular Analysis of Performance

INTRODUCTION

13.1 THE FUNDAMENTALS OF PERFORMANCE DECOMPOSITION

13.2 ATTRIBUTING PERFORMANCE

13.3 DECOMPOSING RISK-ADJUSTED PERFORMANCE RATIOS

REFERENCES

NOTES

CHAPTER 14: Performance Attribution Methods

INTRODUCTION

14.1 ATTRIBUTION ANALYSIS FOR A SINGLE PERIOD

14.2 MULTIPERIOD ATTRIBUTION ANALYSIS

14.3 EXTENDING THE SCOPE OF ATTRIBUTION ANALYSIS

14.4 STATISTICAL PERFORMANCE ATTRIBUTION

REFERENCES

NOTES

PART IV - Act: USING PERFORMANCE FOR DECISION-MAKING

CHAPTER 15: Disclosing and Verifying Portfolio Performance

INTRODUCTION

15.1 THE GLOBAL INVESTMENT PERFORMANCE STANDARDS

15.2 COMMUNICATING FUND PERFORMANCE EFFECTIVELY

15.3 COMMUNICATING PERSONAL PORTFOLIO PERFORMANCE EFFECTIVELY

15.4 FUND RATINGS AND PORTFOLIO ANALYTICS

REFERENCES

NOTES

CHAPTER 16: Applications of Performance in Investment Decisions

INTRODUCTION

16.1 USING PERFORMANCE TO DETERMINE THE INVESTMENT UNIVERSE

16.2 USING PERFORMANCE FOR PORTFOLIO STRATEGY DESIGN

16.3 USING PERFORMANCE TO SERVE INVESTOR NEEDS

16.4 RECONCILING ESG INVESTMENTS AND PERFORMANCE

REFERENCES

NOTES

CHAPTER 17: Performance and Predictability

INTRODUCTION

17.1 WHAT DOES PREDICTABILITY ENCOMPASS?

17.2 ABSOLUTE PERSISTENCE

17.3 RELATIVE PERSISTENCE WITH RECURSIVE PORTFOLIOS

17.4 RELATIVE PERSISTENCE WITH MATCHED RANKINGS

REFERENCES

NOTES

CHAPTER 18: Agency Issues and Illusion of Performance

INTRODUCTION

18.1 THE STANDARD AGENCY FRAMEWORK

18.2 HOW TO MITIGATE AGENCY CONFLICTS?

18.3 PERFORMANCE MEASUREMENT AND AGENCY ISSUES

18.4 DESIGNING A NORMATIVE PERFORMANCE MEASURE

18.5 THE ROLE OF LUCK IN PERFORMANCE MEASUREMENT

REFERENCES

NOTES

Index

End User License Agreement

List of Tables

Chapter 1

TABLE 1-1 Overviews of the chapters contained in Part I.

TABLE 1-2 Overviews of the chapters contained in Part II.

TABLE 1-3 Overviews of the chapters contained in Part III.

TABLE 1-4 Overviews of the chapters contained in Part IV.

TABLE 1-5 Properties of some common risk measures (adapted from Ortobelli et...

Chapter 2

TABLE 2-1 Risk–return profiles.

TABLE 2-2 Return correlation matrix.

TABLE 2-3 Return correlation matrix including the market portfolio.

TABLE 2-4 Statistics on estimated betas.

TABLE 2-5 Empirical and theoretical average returns, standard deviations, an...

TABLE 2-6 Regression results for the

ex post

SML.

TABLE 2-7 Regression results from single- and two-factor models.

Chapter 3

TABLE 3-1 XYZ example – Monthly rates of return.

TABLE 3-2 XYZ example – Means, volatilities, and correlations.

TABLE 3-3 XYZ example – Percentile information for different time periods.

TABLE 3-4 XYZ example – Sharpe ratios.

TABLE 3-5 Sharpe ratios for global financial markets in the long term.

TABLE 3-6 Descriptive statistic of rolling five-year Sharpe ratios.

TABLE 3-7 Minimum number of observations necessary to exclude 0 from the con...

TABLE 3-8 XYZ example – Confidence intervals around estimated Sharpe ratios....

TABLE 3-9 XYZ example – Pairwise Z-statistics of the Sharpe ratio (using 3...

TABLE 3-10 XYZ example – Linear regression outputs.

TABLE 3-11 XYZ example – Treynor ratio, Jensen's alpha, and the modified Jen...

TABLE 3-12 Significance level of the modified Jensen's alpha compared to tho...

TABLE 3-13 XYZ example – Pairwise Z-statistics of the Treynor ratios (with 3...

TABLE 3-14 XYZ example – Appraisal ratio.

TABLE 3-15 Minimum number of observations necessary to obtain Information ra...

TABLE 3-16 Critical values of the yearly Information ratios in various conte...

TABLE 3-17 XYZ example – Significance of the Appraisal ratio.

Chapter 4

TABLE 4-1 G–T–N example – Means, volatilities, and correlations.

TABLE 4-2 Link between risk decomposition and performance measures.

TABLE 4-3 Measurement units and scales of the classical performance measures...

TABLE 4-4 Synoptic table of the classical performance measures.

TABLE 4-5 G–T–N example – Outcomes of the classical performance measures.

TABLE 4-6 G–T–N example – Synoptic table of the classical performance measur...

TABLE 4-7 G–T–N example – Fully constrained optimal portfolios for different...

TABLE 4-8 G–T–N example – Partially constrained optimal portfolios for diffe...

TABLE 4-9 G–T–N example – Unconstrained optimal portfolios with a single fun...

TABLE 4-10 G–T–N example – Construction of the optimally weighted portfolio ...

TABLE 4-11 Summary of the situations pertaining to the use of different type...

TABLE 4-12 G–T–N example – Fund advice corresponding to each investor's situ...

TABLE 4-13 Structure of the two-by-two performance ranking comparisons.

TABLE 4-14 G–T–N example – Means, volatilities, and correlations for the pee...

TABLE 4-15a G–T–N example – Match of peer group rankings with Jensen's alpha...

TABLE 4-15b G–T–N example – Match of peer group rankings with the modified J...

TABLE 4-15c G–T–N example – Match of peer group rankings with the Informatio...

TABLE 4-16 G–T–N example – Association measures for the candidate performanc...

Chapter 5

TABLE 5-1 G–T–N example – Summary statistics and performance measures.

TABLE 5-2 G–T–N example – Sharpe ratios with different lending and borrowing...

TABLE 5-3 G–T–N example – Certainty equivalents with different risk-aversion...

TABLE 5-4 Sharpe ratios for a hypothetical portfolio across time and investm...

TABLE 5-5 G–T–N example – Comparison of the adjusted

R

-squared.

TABLE 5-6 G–T–N example – Performance measures for the Thematic fund under a...

TABLE 5-7 G–T–N example – Statistics of the Neutral fund in high and low mar...

TABLE 5-8 Anticipated impact of the combination of skewness and kurtosis on ...

TABLE 5-9 G–T–N example – Relevant estimates for volatility adjustments.

TABLE 5-10 G–T–N example – Summary of the directions of necessary volatility...

TABLE 5-11 G–T–N example – Adjusted betas.

TABLE 5-12 Gaussian probability of observing negative excess returns under v...

TABLE 5-13 G–T–N example – Summary statistics and performance measures per y...

TABLE 5-14 G–T–N example – Contributors to differential returns per period....

Chapter 6

TABLE 6-1 XYZ example – Means, volatilities, higher moments, and correlation...

TABLE 6-2 XYZ example – geometric and average Sharpe ratios.

TABLE 6-3 XYZ example – Original and revised Sharpe ratios.

TABLE 6-4 XYZ example – Relevant estimates for volatility adjustments.

TABLE 6-5 XYZ example – Refined Sharpe ratios with the different volatility ...

TABLE 6-6 XYZ example – Computation of the efficiency ratios.

TABLE 6-7 XYZ example – Computation of the normalized Sharpe ratios.

TABLE 6-8 XYZ example – Computation of the adjusted Sharpe ratios.

TABLE 6-9 XYZ example – Computation of the Roy ratios and the break-even res...

TABLE 6-10 XYZ example – Monthly rates of return.

TABLE 6-11 XYZ example – Computation of the alternative variability measures...

TABLE 6-12 XYZ example – Computation of the downside risk measures.

TABLE 6-13 XYZ example – Computation of the drawdown-based measures.

TABLE 6-14 Multipliers of the volatility for the Gaussian VaR and CVaR.

TABLE 6-15 Multipliers of the volatility for the CVaR (Gaussian case and Cor...

TABLE 6-16 XYZ example – Computation of the VaR-based measures.

TABLE 6-17 XYZ example – Computation of the alternative systematic risk-base...

TABLE 6-18 XYZ example – original Information ratio.

TABLE 6-19 XYZ example – Statistics of the active returns.

TABLE 6-20 XYZ example – Alternative Information ratios.

TABLE 6-21 Synoptic table of the classical performance measures (same as Tab...

TABLE 6-22 XYZ example – Risk-adjusted return transformations of the Sharpe ...

TABLE 6-23 XYZ example – Graham–Harvey performance measures.

TABLE 6-24 XYZ example – Incremental risk-adjusted performance of the funds ...

TABLE 6-25 Complete synoptic table of the classical performance measures.

Chapter 7

TABLE 7-1 KFF example – Means, volatilities, and correlations with the KFF f...

TABLE 7-2 KFF example – Coefficients of the multiple linear regressions.

TABLE 7-3 KFF example – Additional checks of the index selection criteria.

TABLE 7-4 KFF example – Confidence intervals for the four initial style inde...

TABLE 7-4 KFF example – Confidence intervals for the two retained style inde...

TABLE 7-5 KFF example – Summary of the two-index regression outputs for the ...

TABLE 7-6 KFF example – Excess returns and volatilities of the portfolios.

TABLE 7-7 KFF example – Summary of the single-index regression outputs for t...

Chapter 8

TABLE 8-1 CX-T example – Monthly rates of return.

TABLE 8-2 CX-T example – Linear regression outputs.

TABLE 8-3 CX-T example – Henriksson–Merton (HM) regression outputs.

TABLE 8-4 CX-T example – Adjusted HM alphas according to the three methods....

TABLE 8-5 CX-T example – Identification of selectivity and timing in modifie...

TABLE 8-6 Portfolio weights as a function of market conditions.

TABLE 8-7 CX-T example – Outcomes of the algorithm for the search of .

TABLE 8-8 CX-T example – Adjusted HM alphas associated with the optimal stri...

TABLE 8-9 CX-T example – Treynor–Mazuy (TM) linear regression outputs.

TABLE 8-10 Synthesis of option-based replicating strategies.

TABLE 8-11 CX-T example – Option characteristics for the replicating portfol...

TABLE 8-12 CX-T example – Adjusted TM alphas according to the four methods....

TABLE 8-13 CX-T example – Mixed TM–HM linear regression outputs.

TABLE 8-14 CX-T example – Monthly rates of return and beta for fund CX-C.

TABLE 8-15 CX-T example – Determination of the positive period weighting mea...

TABLE 8-16 CX-T example – Computation of the self-benchmarked performance fo...

TABLE 8-17 CX-T example – Regression outputs for the time-varying betas of F...

TABLE 8-18 CX-T example –

R

2

from the different nonlinear market timing regr...

Chapter 9

TABLE 9-1 HiMeLo example – Monthly rates of return and summary statistics.

TABLE 9-2 Summary of the properties of the remarkable utility functions.

TABLE 9-3 HiMeLo example – Portfolio Q-scores for the different categories o...

TABLE 9-4 HiMeLo example – Portfolio Q-alphas for different categories of in...

TABLE 9-5 HiMeLo example – Portfolio V-alphas for the new categories of inve...

TABLE 9-6 Multiplier of the Gaussian risk-aversion coefficient for differe...

TABLE 9-7 HiMeLo example – Portfolio four-moment Q-scores for the different ...

TABLE 9-8 HiMeLo example – Portfolio power certainty equivalents for differe...

TABLE 9-9 HiMeLo example – Portfolio power compensating rebates for differen...

TABLE 9-10 HiMeLo example – Utility-consistent Sharpe ratios.

Chapter 10

TABLE 10-1 HiMeLo example – Monthly rates of return and summary statistics (...

TABLE 10-2 HiMeLo example – Behavioral quadratic scores for different catego...

TABLE 10-3 HiMeLo example – Prospect Theory scores for different categories ...

TABLE 10-4 HiMeLo example – Behavioral Sharpe ratios for different behaviora...

TABLE 10-5 HiMeLo example – Relative levels of the F-T ratios for different ...

TABLE 10-6 Special cases of the Farinelli–Tibiletti ratio.

TABLE 10-7 HiMeLo example – Relative levels of the ratios of partial moments...

TABLE 10-8 HiMeLo example – Prospect ratios for different categories of inve...

TABLE 10-9 HiMeLo example – Stutzer convergence index for different categori...

TABLE 10-10 Cornish–Fisher multipliers for the shortfall and surplus modifie...

TABLE 10-11 HiMeLo example – Summary statistics and multipliers of the conti...

TABLE 10-12 HiMeLo example – Modified Global Goal-based performance of the t...

Chapter 11

TABLE 11-1 The complete list of performance measures (by order of appearance...

TABLE 11-2 The complete list of performance measures (by alphabetical order)...

TABLE 11-3 Glossary of symbols used in the formulas (Roman alphabet).

TABLE 11-4 Glossary of symbols used in the formulas (Greek alphabet).

TABLE 11-5 Matching analysis for the market-timing-based measures.

TABLE 11-6 Matching analysis for the preference-based ratios.

TABLE 11-7 Matching analysis for the standardized risk-adjusted ratios.

TABLE 11-8 Matching analysis for the standardized risk-adjusted differences....

TABLE 11-9 Matching analysis for the family of measures of relative performa...

TABLE 11-10 Matching analysis for the family of measures of absolute perform...

TABLE 11-11 Matching analysis for the family of density-based measures.

TABLE 11-12 Matching analysis for the family of utility-based measures.

TABLE 11-13 Matching analysis for the periodic table of performance measures...

TABLE 11-14 Structure of the two-by-two fund ranking comparisons.

TABLE 11-15 List of the measures retained by Cogneau and Hübner (2015).

TABLE 11-16 Main performance measures associated with the first seven princi...

TABLE 11-17 Main performance measures associated with the first six clusters...

TABLE 11-18 Synthetic dashboard to guide the choice of a performance measure...

Chapter 12

TABLE 12-1 DFSO example – Minimum, target, and maximum allocations per asset...

TABLE 12-2 DFSO example – Decomposition of the monthly bond portfolio return...

TABLE 12-3 DFSO example – Bond portfolio yield sensitivities.

TABLE 12-4 DFSO example – Multifactor regression results.

TABLE 12-5 Combined impact of active duration and duration excess return on ...

TABLE 12-6 DFSO example – Performance measures with self-defined benchmark....

TABLE 12-7 DFSO example – Observed excess returns for hedge funds, real esta...

TABLE 12-8 DFSO example – Unsmoothed returns for hedge funds and real estate...

TABLE 12-9 DFSO example – Returns of synthetic OTM call and put options.

TABLE 12-10 DFSO example – Upward and downward betas for the three specifica...

Chapter 13

TABLE 13-1 VAS example – Monthly rates of return of the benchmark and market...

TABLE 13-2 VAS example – Monthly rates of return of the Verso fund.

TABLE 13-3 VAS example – Monthly rates of return of the Alloco fund.

TABLE 13-4 VAS example – Monthly rates of return of the Selecto fund.

TABLE 13-5 VAS example – Main return, risk, and performance indicators.

TABLE 13-6 VAS example – Monthly returns of the equity sectors for the bench...

TABLE 13-7 VAS example – Monthly returns and weights of the equity sectors f...

TABLE 13-8 VAS example – Monthly returns and weights of the equity sectors f...

TABLE 13-9 VAS example – Fama's (1972) performance decomposition.

TABLE 13-10 VAS example – Average active shares and tracking errors.

TABLE 13-11 VAS example – Monthly rates of return of the four selected funds...

TABLE 13-12 VAS example – Building blocks for the Sharpe ratio contribution ...

TABLE 13-13 VAS example – Building blocks for the Sharpe ratio contribution ...

TABLE 13-14 VAS example – Total risk weights versus active risk weights.

Chapter 14

TABLE 14-1 VAS example – Monthly rates of return of the benchmark and market...

TABLE 14-2 VAS example – Monthly rates of return of the Verso fund.

TABLE 14-3 VAS example – Monthly rates of return of the Alloco fund.

Table 14-4 VAS example – Monthly rates of return of the Selecto fund.

Table 14-5 VAS example – Monthly returns of the equity sectors for the bench...

TABLE 14-6 VAS example – Monthly returns and weights of the equity sectors f...

TABLE 14-7 VAS example – Monthly returns and weights of the equity sectors f...

TABLE 14-8 The BHB quadrants.

TABLE 14-9 VAS example – Outcome of the BHB attribution analysis at the leve...

TABLE 14-10 VAS example – Outcome of the BHB attribution analysis at the lev...

TABLE 14-11 VAS example – Weights and returns for the Technology sector (May...

TABLE 14-12 VAS example – Difference between the Allocation effects in the B...

TABLE 14-13 Summary of weights and returns for bottom-up portfolio managemen...

TABLE 14-14 Illustration of the computation of ESG-adjusted benchmark weight...

TABLE 14-15 Illustration of the computation of the NS and ESG benchmark weig...

TABLE 14-16 VAS example – Linking coefficients.

TABLE 14-17 VAS example – Cumulative effects.

TABLE 14-18 VAS example – Fund, benchmark, and currency data for the Verso f...

TABLE 14-19 VAS example – Ankrim–Hensel analysis for the Verso fund (Februar...

Table 14-20 The KS quadrants.

TABLE 14-21 VAS example – Fund, benchmark, and currency data for the Verso f...

TABLE 14-22 VAS example – Karnosky–Singer analysis for the Verso fund (Febru...

TABLE 14-23 VAS example – Fund, benchmark, and yield data for the Verso fund...

TABLE 14-24 VAS example – Additional bond data for the Verso fund (January a...

TABLE 14-25 VAS example – Campisi (2011) analysis for the Verso fund (Januar...

TABLE 14-26 VAS example – Aggregate single-factor betas.

TABLE 14-27 VAS example – Outcome of the Factor-based attribution analysis....

TABLE 14-28 Risk adjustments for different returns depending on the risk typ...

TABLE 14-29 VAS example – Rebuilt sample of segment returns on the basis of ...

TABLE 14-30 VAS example – Computation of the raw and total risk betas for th...

Chapter 15

TABLE 15-1 Sample GIPS pooled fund report.

TABLE 15-2 Sample GIPS composite report.

TABLE 15-3 Inflows and outflows of a fictitious portfolio.

TABLE 15-4 Illustration of insight-driven and evidence-driven identical info...

TABLE 15-5 Summary statistics with monthly and quarterly returns.

TABLE 15-6 Key ingredients of the periodical portfolio report.

Chapter 16

TABLE 16-1 DFSO example – Portfolio management approach per subclass of asse...

TABLE 16-2

p

-values of the Fisher test for various combinations of and ....

TABLE 16-3 DFSO example – Risk and return statistics of the optimal portfoli...

TABLE 16-4 DFSO example – Outcome of the GRS test for US equities and RoW eq...

TABLE 16-5 DFSO example – Regression estimates for the bond funds and future...

TABLE 16-6 DFSO example – Outcomes of the numerical scenarios for the three ...

TABLE 16-7 Potential value added as a function of residual risk aversion and...

TABLE 16-8 Illustration of the difficulty of using the Information ratio for...

TABLE 16-9 DFSO example – Summary statistics for the three ultrashort bond E...

TABLE 16-10 DFSO example – Performance indicators for the three ETFs.

TABLE 16-11 DFSO example – Summary statistics for the three physical RE proj...

TABLE 16-12 DFSO example – Performance indicators for the three physical RE ...

TABLE 16-13 Summary of the signs of the ESG premium and its constituents in ...

TABLE 16-14 DFSO example – Financial and ESG statistics for the Financial an...

TABLE 16-15 DFSO example – Performance measures for the aggregate portfolios...

Chapter 17

TABLE 17-1 Predilab example – Means, volatilities, and correlations for the ...

TABLE 17-2 Predilab example – Means, volatilities, and correlations for the ...

TABLE 17-3 Summary of differences between absolute and relative persistence ...

TABLE 17-4 Predilab example – Jensen's alphas for periods 1 and 2.

TABLE 17-5 Predilab example – Match of consecutive rankings with Jensen's al...

TABLE 17-6 Predilab example – Modified excess returns over the benchmark for...

TABLE 17-7 Combined impact of the absolute performance and persistence on po...

TABLE 17-8 Predilab example – Rescaled ranges obtained from the sample parti...

TABLE 17-9 Predilab example – Modified Jensen's alphas and active shares.

TABLE 17-10 Predilab example – Performance measures and rankings for period ...

TABLE 17-11 Predilab example – Performance measures of ranked funds for peri...

TABLE 17-12 Predilab example – Somers'

D

for the three ranking systems.

TABLE 17-13 Structure of the 2 × 2 contingency table.

TABLE 17-14 Structure of the

Q

×

Q

actual and expected contingency tables.

TABLE 17-15 Predilab example – 2 × 2 contingency tables for Jensen's alpha a...

TABLE 17-16 Predilab example – Outcomes of the statistical tests on the 2 × ...

TABLE 17-17 Estimates of the standard deviation of the rank association meas...

TABLE 17-18 Predilab example – Match of consecutive rankings with the modifi...

TABLE 17-19 Predilab example – Statistical inference on the three associatio...

Chapter 18

TABLE 18-1 Compensation structure for a sample of US mutual fund portfolio m...

TABLE 18-2 OBI example – Expected fees for various funds and compensation sc...

TABLE 18-3 OBI example – Yearly fees for Class A and Class B shares.

TABLE 18-4 OBI example – Yearly fees for Class C shares.

TABLE 18-5 Risk, return, and performance indicator of five mechanical strate...

TABLE 18-6 OBI example – Sharpe ratios with three different reporting patter...

TABLE 18-7 OBI example – Binomial tree for the quarterly fund value.

TABLE 18-8 OBI example – State- and time-dependent portfolio weights that ma...

TABLE 18-9 OBI example – State- and time-dependent portfolio weights that ma...

TABLE 18-10 Rank correlations between performance measures in the Brown et a...

TABLE 18-11 Classification of multiple hypothesis tests.

List of Illustrations

Chapter 1

FIGURE 1-1 Steps in the portfolio management process.

FIGURE 1-2 The feedback loop of performance evaluation.

FIGURE 1-3 Structure of the “appraisal” dimension in the book.

FIGURE 1-4 Example of diversification on portfolio return standard deviation...

Chapter 2

FIGURE 2-1 Asset returns in the standard deviation–expectation space.

FIGURE 2-2 Two-asset portfolio returns in the standard deviation–expectation...

FIGURE 2-3 Two-asset portfolio returns in the standard deviation–expectation...

Figure 2-4 Investable portfolios in the standard deviation–expectation space...

FIGURE 2-5 Attainable portfolios (with non-negative weights).

FIGURE 2-6 The tangent portfolio and the investment opportunity set.

FIGURE 2-7 The Capital Market Line (CML).

FIGURE 2-8 Combinations of an individual asset and the market portfolio.

FIGURE 2-9 The Security Market Line (SML).

FIGURE 2-10 Portfolios uncorrelated with the market portfolio.

FIGURE 2-11 An example of an

ex post

SML.

FIGURE 2-12 Estimation of the

ex post

SML.

FIGURE 2-13 Market portfolio proxies and their zero-beta portfolios.

Chapter 3

FIGURE 3-1 XYZ example – Cumulative rates of return.

FIGURE 3-2 XYZ example – Box-and-whisker plot over different time periods.

FIGURE 3-3 XYZ example – Peer group positioning in the mean-volatility frame...

FIGURE 3-4 Graphical representation of the Sharpe ratio.

FIGURE 3-5 XYZ example – Representation of the Sharpe ratios.

FIGURE 3-6 Time series of the rolling five-year Sharpe ratios for three port...

FIGURE 3-7 Graphical representation of the Treynor ratio, Jensen's alpha, an...

FIGURE 3-8 XYZ example – Representation of the Treynor ratio, Jensen's alpha...

FIGURE 3-9 Graphical representation of the Information ratio.

FIGURE 3-10 XYZ example – Representation of the Appraisal ratio.

Chapter 4

FIGURE 4-1 G–T–N example – Risk–return properties of the three funds.

FIGURE 4-2 Decomposition of the three types of portfolio risk.

FIGURE 4-3 Fully constrained optimal portfolio selection process.

FIGURE 4-4 G–T–N example – Determination of the optimal fund offering mix.

FIGURE 4-5 Optimal partially constrained portfolio selection process.

FIGURE 4-6 Unconstrained optimal selection process with the market portfolio...

FIGURE 4-7 G–T–N example – Risk–return properties of the optimal portfolios ...

FIGURE 4-8 Illustration of stability selection for a specific ranking cutoff...

Chapter 5

FIGURE 5-1 G–T–N example – Radar chart of the standardized relative performa...

FIGURE 5-2 Graphical representation of the Sharpe ratio with different lendi...

FIGURE 5-3 Graphical representation of the investor's choice between two por...

FIGURE 5-4 G–T–N example – Sharpe ratios of G and M with different lending a...

FIGURE 5-5 G–T–N example – Indifference curves going through G and M for the...

FIGURE 5-6 Evolution of the one-month US Treasury Bill rate over time.

FIGURE 5-7 Joint evolution of the US Treasury market yields-to-maturity over...

FIGURE 5-8 Decomposition of the true alpha into performance evaluation error...

FIGURE 5-9 Illustration of wrong alpha and beta estimations in the case of a...

FIGURE 5-10 G–T–N example – Characteristic lines of the Neutral fund in diff...

FIGURE 5-11 Illustration of the influence of the time window on the estimati...

FIGURE 5-12 Daily returns of the S&P500 Index, 2011–2021.

FIGURE 5-13 Illustration of the three concepts related to extreme risk.

FIGURE 5-14 Risk–return relation of portfolio insurance and covered call str...

FIGURE 5-15 3D representation of the impact of the conditional instrument on...

FIGURE 5-16 G–T–N example – Adjustments of the alpha.

FIGURE 5-17 Graphical representation of (a) the Sharpe ratio and (b) Jensen'...

FIGURE 5-18 Three-year

ex post

rolling excess returns of the S&P500 Index ov...

FIGURE 5-19 Representation of the case of negative Sharpe ratios.

FIGURE 5-20 Representation of the case of low or negative values of betas.

FIGURE 5-21 Performance of a portfolio with a negative beta.

FIGURE 5-22 G–T–N example – Split of the Sharpe ratios (left) and Informatio...

Chapter 6

FIGURE 6-1 XYZ example – Portfolio coordinates in the total risk space.

FIGURE 6-2 XYZ example – Portfolio coordinates in the systematic risk space....

FIGURE 6-3 XYZ example – Portfolio coordinates in the specific risk space.

FIGURE 6-4 Comparison of geometric and arithmetic Sharpe ratios for differen...

FIGURE 6-5 Graphical representation of the revised Sharpe ratio.

FIGURE 6-6 XYZ example – Representation of the revised Sharpe ratios.

FIGURE 6-7 Evolution of the volatility multiplier in different situations....

FIGURE 6-8 Graphical representation of the efficiency ratio.

FIGURE 6-9 Graphical representation of the Roy ratio.

FIGURE 6-10 XYZ example – Representation of the Roy ratios.

FIGURE 6-11 XYZ example – Radar chart of the ratios using alternative variab...

FIGURE 6-12 XYZ example – Radar chart of the ratios using downside risk meas...

FIGURE 6-13 Graphical representation of the drawdown concept.

FIGURE 6-14 Drawdown evolution over time.

FIGURE 6-15 XYZ example – Radar chart of the ratios using drawdown-based mea...

FIGURE 6-16 XYZ example – Evolution of drawdowns for X and Z.

FIGURE 6-17 Illustration of the three concepts related to extreme risk.

FIGURE 6-18 XYZ example – Radar chart of the ratios using VaR-based measures...

FIGURE 6-19 Graphical representation of the modified Treynor ratio.

FIGURE 6-20 XYZ example – Representation of the modified Treynor ratio.

FIGURE 6-21 XYZ example – Radar chart of the alternative Information ratios....

FIGURE 6-22 Graphical representation of the risk-adjusted return transformat...

FIGURE 6-23 Graphical representation of the Graham–Harvey measures.

FIGURE 6-24 XYZ example –

M

3

as a function of the target tracking error.

Chapter 7

FIGURE 7-1 KFF example – Evolution of the and as a function of the numbe...

FIGURE 7-2 Summary of the multiple testing approach on a selected set of emp...

FIGURE 7-3 Graphical representation of the multifactor alpha.

FIGURE 7-4 Graphical representation of the multifactor modified alpha.

FIGURE 7-5 Graphical representation of the multifactor relative risk-adjuste...

FIGURE 7-6 KFF example – Representation of the pure, modified, and global In...

FIGURE 7-7 KFF example – Evolution of the cumulative conditional and constan...

Chapter 8

FIGURE 8-1 CX-T example – Cumulative rates of return.

FIGURE 8-2 Graphical representation of the Henriksson and Merton (1981) mode...

FIGURE 8-3 CX-T example – Types of relations between excess fund and market ...

FIGURE 8-4 CX-T example – Regression lines under the original and flexible H...

FIGURE 8-5 Graphical representation of the Treynor and Mazuy (1966) model.

FIGURE 8-6 CX-T example – Types of relations between excess fund and market ...

FIGURE 8-7 Illustration of the optional adjustment to the TM model.

FIGURE 8-8 CX-T example – Comparison between the quadratic regression and th...

FIGURE 8-9 CX-T example – Mixed TM–HM regression curves.

FIGURE 8-10 Illustration of different estimation procedures for dynamic beta...

FIGURE 8-11 CX-T example – Joint evolution of market excess return and CX-C ...

FIGURE 8-12 CX-T example – Evolution of the cumulative values of timing and ...

FIGURE 8-13 A decision tree to choose the adequate performance measure in th...

FIGURE 8-14 CX-T example – Fitted regression curves for fund CX-A.

Chapter 9

FIGURE 9-1 HiMeLo example – Risk–return properties of the three model portfo...

FIGURE 9-2 Certainty equivalents for two utility functions.

FIGURE 9-3 Certainty equivalents for different portfolios and the risk-free ...

FIGURE 9-4 Representation of the negative exponential, power, and quadratic ...

FIGURE 9-5 Quadratic scores and indifference curves for two different invest...

FIGURE 9-6 HiMeLo example – Selected portfolios and their associated indiffe...

FIGURE 9-7 Graphical representation of the Quadratic alpha.

FIGURE 9-8 HiMeLo example – Selected portfolios and the indifference curves ...

FIGURE 9-9 Graphical representation of the Target volatility alpha.

FIGURE 9-10 HiMeLo example – Selected portfolios and the indifference curves...

FIGURE 9-11 HiMeLo example – Segmentation in a two-dimensional profile matri...

FIGURE 9-12 HiMeLo example – Utility surplus with three approaches for the N...

Chapter 10

FIGURE 10-1 Behavioral type of utility function.

FIGURE 10-2 Shapes of the dual power utility function in Prospect Theory.

FIGURE 10-3 HiMeLo example – PT-scores of the three portfolios as a function...

FIGURE 10-4 HiMeLo example – Prospect ratios of the three portfolios as a fu...

FIGURE 10-5 HiMeLo example – Frequency-based performance of the three portfo...

FIGURE 10-6 Mechanism of the horizon-asymmetry mental accounting (HAMA) fram...

FIGURE 10-7 Illustrations of the three types of historical estimation proced...

Chapter 11

FIGURE 11-1 The global decision tree for performance measurement.

FIGURE 11-2 The sub-partitioning of the market-timing-based measures.

FIGURE 11-3 The sub-partitioning of the preference-based measures.

FIGURE 11-4 The sub-partitioning of the standardized risk-adjusted ratios....

FIGURE 11-5 The sub-partitioning of the standardized risk-adjusted differenc...

FIGURE 11-6 Outcome of the principal components analysis (PCA) on 36 perform...

FIGURE 11-7 Dendrogram of the cluster analysis on 147 performance measures....

Chapter 12

FIGURE 12-1 Summary of the components of bond returns.

FIGURE 12-2 Graphical representation of the duration-based classical perform...

FIGURE 12-3 Wagner and Tito's (1977) decomposition of the average bond portf...

FIGURE 12-4 DFSO example – Performance decomposition according to duration a...

FIGURE 12-5 DFSO example – Comparison of cumulative observed and unsmoothed ...

FIGURE 12-6 Illustration of the potential issues with hedge fund databases....

FIGURE 12-7 DFSO example – Observed and fitted hedge fund portfolio returns....

FIGURE 12-8 Illustration of the logic underlying vintage year diversificatio...

FIGURE 12-9 Expected evolution of capital calls and distributions over time....

FIGURE 12-10 Proportion of funds that shift performance quartiles as a funct...

FIGURE 12-11 DFSO example – Observed and fitted private equity portfolio ret...

Chapter 13

FIGURE 13-1 VAS example – Cumulative rates of return.

FIGURE 13-2 Fama's (1972) decomposition of the average portfolio return.

FIGURE 13-3 Relevant performance measures for the three points of view of an...

FIGURE 13-4 VAS example – Fama's (1972) performance decomposition for the Ve...

FIGURE 13-5 VAS example – Evolution of the market timing of each fund over t...

FIGURE 13-6 VAS example – Monthly performance contribution per asset class (...

FIGURE 13-7 VAS example – Monthly performance contribution per asset class (...

FIGURE 13-8 VAS example – Monthly performance contribution per asset class (...

FIGURE 13-9 VAS example – Performance contribution inside the equity sub-por...

FIGURE 13-10 Waterfall of the decision-making process in active portfolio ma...

FIGURE 13-11 VAS example – Waterfall of the decision-making process for the ...

FIGURE 13-12 Heatmap of the

ex ante

active manager's anticipated skills.

FIGURE 13-13 Heatmap of the Sharpe ratio contributors.

FIGURE 13-14 VAS example – Evolution of the proportions of the global Sharpe...

FIGURE 13-15 VAS example – Fund-by-fund attribution of the difference in Sha...

FIGURE 13-16 VAS example – Pie charts of the Information ratio attribution....

Chapter 14

FIGURE 14-1 VAS example – Contribution of different effects to the average e...

FIGURE 14-2 Geometric interpretation of the components of performance in the...

FIGURE 14-3 Geometric attribution analysis with two segments.

FIGURE 14-4 VAS example – Components of performance for the Technology secto...

FIGURE 14-5 Geometric interpretation of the components of performance in the...

FIGURE 14-6 VAS example – Cumulative evolution of the three effects for the ...

FIGURE 14-7 VAS example – Cumulative evolution of the three effects within t...

FIGURE 14-8 Decomposition of currency return between the deterministic and r...

FIGURE 14-9 VAS example – Brinson–Fachler global effects for the Verso fund ...

FIGURE 14-10 VAS example – Ankrim–Hensel global effects for the Verso fund (...

FIGURE 14-11 VAS example – Karnosky–Singer global effects for the Verso fund...

FIGURE 14-12 VAS example – Duration and Residual effects for the Verso fund ...

FIGURE 14-13 Excess return decomposition approach in sector-based fixed-inco...

FIGURE 14-14 VAS example – Carry, Yield Curve, Spread, and Residual effects ...

FIGURE 14-15 VAS example – Attribution effects with the BF and the single-fa...

FIGURE 14-16 Adapted decomposition of the average portfolio return with beta...

FIGURE 14-17 Rescaled risk-adjusted portfolio returns.

FIGURE 14-18 VAS example – Risk-adjusted attribution by sector for the Alloc...

Chapter 15

FIGURE 15-1 Representation of the volatility intervals in the Key Informatio...

FIGURE 15-2 Illustration of the use of probability cones in the portfolio mo...

FIGURE 15-3 Illustration of the investor-specific dynamic risk–return framew...

FIGURE 15-4 Typical partitioning approach of fund rating agencies.

FIGURE 15-5 Partitioning approach of a flexible portfolio diagnostic system....

FIGURE 15-6 Illustration of portfolio diagnostics with the use of the linex ...

FIGURE 15-7 Heatmap of the interaction between ESG and financial performance...

Chapter 16

FIGURE 16-1 Spanning and intersection of efficient frontiers.

FIGURE 16-2 Graphical representation of the Gibbons et al. (1989) test.

FIGURE 16-3 DFSO example – Risk and return properties of the optimal portfol...

FIGURE 16-4 Schematic representation of the core–satellite portfolio managem...

FIGURE 16-5 Illustration of the portable alpha mechanism.

FIGURE 16-6 First- and second-order stochastic dominance.

FIGURE 16-7 Application of the HAMA framework to the design of a structured ...

FIGURE 16-8 DFSO example – Histograms of the scenario outcomes for the three...

FIGURE 16-9 DFSO example – Repartition of the histograms under the HAMA fram...

FIGURE 16-10 Information ratios with the use of trackers for homemade levera...

FIGURE 16-11 Graphical representation of the constrained Quadratic alpha.

FIGURE 16-12 DFSO example – Decomposition of the constrained Quadratic alpha...

FIGURE 16-13 Graphical representation of the venture Quadratic alpha.

FIGURE 16-14 Illustration of the RVR of the optimal investor portfolio as a ...

FIGURE 16-15 Illustrations of the ESG-efficient frontier and the ESG-restric...

FIGURE 16-16 Graphical representation of the two-factor ESG alpha.

Chapter 17

FIGURE 17-1 Predilab example – Dependence between Jensen's alphas in period ...

FIGURE 17-2 Illustration of trending analysis for five-year rolling Sharpe r...

FIGURE 17-3 Predilab example – Cumulative modified excess returns for the Th...

FIGURE 17-4 Predilab example – Rolling window modified alphas for the Themat...

FIGURE 17-5 Graphical illustration of the persistence horizon with the Sharp...

FIGURE 17-6 Predilab example – Cumulative modified excess returns for the Th...

FIGURE 17-7 Predilab example – Linear regression for the Hurst exponent.

FIGURE 17-8 Predilab example – Univariate regression results on modified Jen...

FIGURE 17-9 Illustration of the recursive portfolio sorting methodology.

FIGURE 17-10 Illustration of average returns of calendar portfolios over dif...

FIGURE 17-11 Predilab example – Performance measures of the median portfolio...

FIGURE 17-12 Illustration of the quality of a fund survivorship prediction m...

FIGURE 17-13 Predilab example – Survivorship predictive power of the three s...

FIGURE 17-14 Illustration of the use of stability selection in the context o...

FIGURE 17-15 Illustration of the matched ranking methodology.

Chapter 18

FIGURE 18-1 Schematic representation of the agency relationship.

FIGURE 18-2 Basic agency structure in asset management.

FIGURE 18-3 More advanced agency structure in asset management.

FIGURE 18-4 The flow-performance sensitivity as documented by Mazur et al. (...

FIGURE 18-5 Example of annual performance fee with quarterly high water mark...

FIGURE 18-6 Illustration of the difference between the high water mark (left...

FIGURE 18-7 Sharpe ratios of the covered call strategy as a function of the ...

FIGURE 18-8 Returns of the Linear and 2OTM CC trading strategies.

FIGURE 18-9 Risk–return coordinates of the five strategies with volatility (...

FIGURE 18-10 Illustration of the outcome of a conditional modification of be...

FIGURE 18-11 Overall Sharpe ratios as a function of the newly targeted mean ...

FIGURE 18-12 Simulation of the NAV with three different reporting patterns....

FIGURE 18-13 Histogram of Fund C daily returns – No manipulation.

FIGURE 18-14 Histogram of Fund C daily returns – Manipulation.

FIGURE 18-15 Individual and cross-sectional

t

-statistic distributions.

Guide

Cover

Table of Contents

Title Page

Copyright

Dedication

Preface

Acknowledgements

About the Website

Begin Reading

Index

End User License Agreement

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“This is indeed a complete guide to portfolio performance. The authors have described a range of possible measures and evaluated their usefulness in theory and in practice. It will serve as both an introduction to this important subject and a reference work for those concerned with measuring and analyzing the performance of investment portfolios.”

William F. Sharpe, Professor Emeritus, Stanford University

“Performance measurement has expanded in many directions over the last decades. François and Hübner provide a much needed, ambitious synthesis. Their Complete Guide to Portfolio Performance is the reference that should always be within immediate reach, with the confidence that insightful answers about any question related to portfolio performance will be found. The authors do not only effectively synthesize the state‐of‐the‐art knowledge in the field, but they also bring their own original and specific contributions on many occasions. A massive tour de force.”

Frank J. Fabozzi, Professor of Practice, The Johns Hopkins University, Carey Business School. Editor of The Journal of Portfolio Management

“The book analyzes many facets of performance appraisal but also explains how it is integrated within the portfolio management process. Each topic is reviewed with rigor and augmented with practical and easy‐to‐implement examples.”

Naïm Abou‐Jaoudé, Chief Executive Officer, New York Life Investments Management

The Complete Guide to Portfolio Performance

Appraise, Analyze, Act

Pascal FrançoisHEC Montréal

Georges HübnerHEC Liège, Liège University

This edition first published 2024© 2024 John Wiley & Sons Ltd

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Library of Congress Cataloging‐in‐Publication Data is Available

ISBN 9781119930174 (Paperback)ISBN 9781119930181 (ePDF)ISBN 9781119930198 (ePub)

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This book is dedicated to

Laurence, Marianne and PerrinePascal François

Fabienne, Philippe and HélèneGeorges Hübner

Preface

WHY THIS BOOK?

Someone who wishes to invest in financial assets necessarily makes a bet on the future. The outcome of the portfolio management process results from a mixture of efforts, skills, and luck. If the investor is involved in the decision‐making process, they take at least part of the responsibility for the result. To maximize their chances of success, they should be knowledgeable in portfolio management. The editorial offering in this domain is vast and highly qualitative: whatever the reader's initial expertise, there is a reasonable chance of progressing through an adapted learning material. However, the vast majority of people do not manage their portfolio themselves. Rather, they appoint professional asset managers to do it on their behalf. Thus, the challenge is much less to participate in the investment decisions, but rather to control their quality through portfolio performance tools. In designing and writing this book, we have been driven by our empathy toward these numerous persons who entrust finance specialists and, in turn, legitimately expect them to defend their interests in the best possible way.

Animated with this state of mind, we have continuously attempted to address the following question throughout the book: “Given my position in the value chain, from the final customer to the experienced professional, can I get the information that really matters regarding my portfolio's performance?