Portfolio Performance and DFM Flashcards
How can time weighted return be defined and what does it enable investors to do?
It enables investors to determine the rates of return taking into accout where capital is added or withdrawn from the available investment fund.
The TWR allows for a fair comparison of fund management performance, and is far more accurate that the MWR as it disregards the timing of cashflows outwith the fund managers control.
What are the three main methods of measuring risk adjusted returns?
- Sharpe ratio
- Alpha
- information ratio
What does the sharpe ratio measure?
- Sharpe ratio measures the excess return for every uit of risk taken
- Sharpe ratio should be positive and the higher the better.
- Negative sharpe ratios are misleading and should not be relied upon.
Which two types of investment analysis are used by fund managers in the ‘stock selection’ stage of top-down management?
Fundamental and technical analysis
- Fundamental analysis is a detailed analysis of the company concerned and the industry in which it operates.
- Technical analysis involves analysing past share prices & making investment decisions on the basis of trends.
Which of the following are likely to be more volatile, if all invested in the Far East?
investment trust
unit trust
OEIC
structured product
Investment Trust
- Close ended and generally trade at a discount to NAV
- ITs can gear the investment
Formula for Sharpe ratio?
Return - risk free rate / standard deviation
Forumla for Information ratio?
Return - benchmark return / tracking error
What factors should be considered when desigining a client portfolio?
EPIC FACT
Experience of investing
Psychology
Insurance cover
Cash reserves
Family situation
Age and time horizon
Current net worth and income expectations
Taxation
How