StyleADVISOR calculates performance versus both a user-selected benchmark (like the S&P 500) and a unique style benchmark created by StyleADVISOR for each manager. The style benchmark is an excellent performance benchmark because it isolates performance achieved due to the manager’s skill. Here we look at several different StyleADVISOR graphs and tables which evaluate performance, including Manager Performance, Excess Return, Manager vs Benchmark, Calendar Year Returns, Periodic Returns and Custom Graphs.
For a more in-depth look at benchmarking, please see our article Benchmarks.
Manager Performance
One way to measure manager performance is by looking at how an initial investment would have grown over a specific time period. StyleADVISOR’s Manager Performance graph shows the growth of a dollar for the manager, custom style benchmark, and selected market benchmark. The shaded area at the bottom represents the manager’s cumulative excess return over the style benchmark, which is a good measure of the manager's skill.
Tables can be used in StyleADVISOR on their own, or as a way of reinforcing what is being shown on the graph. All of StyleADVISOR’s tables can be customized to display the desired combination of statistics.
Excess Return
The information ratio, which is the ratio of excess return to standard deviation of excess return (or tracking error), is a measure of a manager’s skill and the consistency with which the manager has been able to outperform. StyleADVISOR includes this important statistic in both tables and graphs.
These charts are a great way to compare the consistency of managers’ performance. The rolling window graph below, for example, highlights the difference between active managers (blue and green) and the index fund (red).
The rolling window graph is also helpful for detecting structural changes in a portfolio. A risk control process that was initiated by a manager several years ago, for example, would probably lower the portfolio's tracking error. As a result, the symbols would shift to the left as they do for Active Manager A (blue).
Manager versus Benchmark
StyleADVISOR automatically calculates over 25 statistics every time an analysis is created. These statistics are available with a click of the mouse on the Manager vs. Benchmark graph and tables. The user can select to view rolling windows or cumulative statistics, or select a bar chart and choose the time periods displayed.
Calendar Year Return
StyleADVISOR’s Calendar Year Return graph and table show the managers’ return for the current year (YTD), various calendar years, the time period that all the managers have in common, and the time since inception.
Periodic Returns
You can keep tabs on the performance of managers and benchmarks by viewing monthly, quarterly and yearly total returns and/or excess returns in StyleADVISOR.
Custom Graphs
StyleADVISOR’s graphs and tables encompass most combinations of statistics used by investors. Occasionally, however, a user is interested in creating a more unusual combination on a graph. StyleADVISOR’s Custom Graph allows users to simply right click on the graph and select from over 50 statistics to plot on the horizontal and vertical axes.
The example below shows five large growth funds. The excess return vs. the market benchmark is plotted on the vertical axis and the batting average vs. the market benchmark (the percentage of months the manager beat the benchmark) is on the horizontal axis. This can be shown for a single period or for rolling time periods.
The user can also select time for the horizontal axis so that any of the 50 statistics can be looked at on a rolling basis over a period of time. The bottom graph here shows the manager's alpha vs. the market benchmark for rolling 36-month periods.
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