Investment Philosophy Flashcards
Factor analysis
Method for analyzing risk and performance characteristics beyond traditional asset classes
Factor analysis works in conjunction of
MVO
Common macroeconomic factors would include
growth, real rates, inflation, credit, quality, spreads, and liquidity
Common style factors
value, momentum, volatility, quality, size and carry
Intention of factor analysis
identify and profit from investment factor strategies that outperform the market as a whole through timing and or benefiting from a lack of correlation between these investments
Systematic sources of return
market beta
size
value and growth
momentum
volatility/defensive/quality
domestic versus international
Behavioral finance people say
these strategies earn more average return than they should, for their risk
they must therefore be exploiting mispricing
Rational finance people say
these strategies are risk, but the standard measures of risk fail to capture this
look for new ways to measure risk under which the strategies do look risky
Sentiment risk
risk that mispricing will get worse in the short run
Capital gains Realization Rate
the percentage of the funds net unrealized capital gains that the manager chose to realize
Portfolio Turnover Rate
a simple measure of potential taxation, but not usually the best measure of tax-efficency
Relative wealth measure
the higher the better, zero indicates little tax impact
Works in all kinds of markets
Consultants Capture Ratio
captures the percentage of return that taxable investors retain
after tax return divided by before tax return
Works well is smooth and upward trending markets
Accountants Ratio
equals the ratio of short term capital gains realized to total capital gains realized
Portfolio Turnover Rate calculation
divide the net assets or investments bough and sold by the portfolio value
