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The The Future Future Evaluate Skill NOT Style Performance Performance Measurement Measurement And Attribution And Attribution
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The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Dec 30, 2015

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Sheryl Curtis
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Page 1: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

The The FutureFutureEvaluate Skill NOT Style

Performance Performance MeasurementMeasurement

And AttributionAnd Attribution

Page 2: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Luck??Luck??

Skill??

Back to BasicsBack to Basics

Page 3: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Luck?Luck???

If you don’t know the problem,you can’t fix it.

Old Approaches Don’t Old Approaches Don’t WorkWork

Skill?? =Style??

Page 4: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Off-the-shelf Benchmark

Portfolio

Results

Performance AnalysisPerformance Analysis 1980’s Slicer & Dicer 1980’s Slicer & Dicer

SectorSizeYieldP/E

Page 5: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

LuckLuckSkillSkill

Bridge the GapBridge the Gap Is Your Manager Lucky or SkillfulIs Your Manager Lucky or Skillful??

Page 6: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

StyleStyleMatterMatterss

Page 7: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Past ISIS Prologue: Information Ratios and

Sortino Omegas PERSIST

M arke t Re tu rn S tyle E ffec ts

S to ck S e lec tion S ecto r Allo ca tion A ctiv ity

S k ill*

* Gruber(96), Stewart(98), Rudd & Kahn(99,00,01), Ibbotson(01)

GettingWHY’s

MPT, PMPT, APT, RBSA… Market and Style effects dominate Style-&-market-adjusted success/failure persists Signal / Noise

Page 8: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

The difference between The difference between

Style and SkillStyle and Skill Styles go in & out of favor Skill persistsSkill persists

Page 9: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

TheTheCostCostOfOfConfusiConfusionon

Page 10: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

M arke t Re tu rn S tyle E ffec ts

S to ck S e lec tion S ecto r Allo ca tion

S k ill

AttributionAttribution

Against Custom Style Blend

Sources of ReturnSources of Return

Returns or Holdings

StyleStyleAnalysiAnalysiss

Value

Core

Growth

Page 11: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Evolution of Evolution of AttributionAttribution

Page 12: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

ValueGrowth

Core

Portfolio

CustomBenchmark

SkillSkill

Style

Today’s Craft Today’s Craft

Page 13: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Sample Analysis of Skill & Sample Analysis of Skill & StyleStyle

Page 14: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

A Close Look at Style Effects

Page 15: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

A Closer Look at Style Effects

Page 16: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

DetailsSector Allocation & Stock Selection

Attribution

Page 17: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Sector Allocation

Custom Style Benchmark

FundAllocation

Page 18: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Sector Allocation & Stock Selection

Fund ReturnsStyle Opportunities

Custom Style BenchmarkCustom Style Benchmark

Page 19: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Attribution

Page 20: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Attribution

Page 21: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

StyleStyleMatterMatterss

Page 22: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Style Allocation & Performance

Page 23: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

TrendsStyle AllocationSector AllocationCumulative Performance

Cum Sources of Cum Sources of Value Added – Value Added – PersistencePersistenceRelative Performance

Page 24: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Style Allocation History

$

Page 25: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Style Allocation History

Mid Growth

Mid CoreMid Value

Large GrowthLarge Core

Large Value

$

Page 26: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Sector Allocation

Technology

Finance

Non-Durables

Health

$

Page 27: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Cumulative Growth

Fund

MarketStyle

Ranks

Page 28: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Consistent Consistent Sources of Sources of

Value AddedValue Added

The Best The Best Picture Picture

Page 29: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Sources of Value Added -- Persistence

Stock Selection

Sector Allocation

Activity

Page 30: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Sources of Value Added -- Persistence

Stock Selection

Sector Allocation

Activity

Page 31: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

BenefitsBenefits Identify Skillful Investment ManagersRisk Control (MDAs)GlobalHedge Funds

Page 32: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Talent Contest Talent Contest Made Easy Made Easy

Winners of the Style-Style-adjustedadjusted Performance Race

Reasons for Win ConfirmPeople, Process, Philosophy

Page 33: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Equity Equity DiversificationDiversification

Sector: Technology, Consumer, Health Care

Characteristics: Capitalization, P/E, yield, R-squared

Page 34: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Equity Equity DiversificationDiversification

Sector: Technology, Consumer, Health Care

Characteristics: Capitalization, P/E, yield

StyleStyle

Page 35: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

ExtensionsGlobal

Hedge Funds

Page 36: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Hedge FundsHedge FundsLeverageDirection

Amount long & amount short

StyleStyle

Page 37: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Off-the-shelf Benchmark

Portfolio

Results

The PastThe Past

Page 38: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

ValueGrowth

Core

Portfolio

CustomBenchmark

SkillSkill

Style

The The FutureFuture

Page 39: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

No standardization in sight, but…

Style Indexes

Page 40: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Style EffectsStyle Effects(Holdings or Returns-(Holdings or Returns-

Based)Based)

Growth

Core

Value

Page 41: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Some Suggested Criteria

Mutually Exclusive: Multicollinearity/ Holdings Reports

Exhaustive (Includes everything): Fit/ Holdings Reports

Regular Rebalancing: Adjust to Change

Core: Value-Growth Compromise

Page 42: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Surz Style DefinitionsSurz Style Definitions

Capitalization

Large : Top 65% of $s

Mid : Next 30%

Small : Bottom 5%

E/P + y + B/P

Value : Top 40%

Core : Middle 20%

Growth : Bottom 40%

Rebalanced Quarterly

Page 43: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Research

Caution PopularityPopularity is notis notNecessarilyNecessarilySynonymous Synonymous withwith QualityQuality

Page 44: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Mobius ResearchMobius Research

Candidates : Russell, Surz, Pru, Wilshire, Vestek

Fundamental : All win except WilshireTracking error : Surz & RussellMulticollinearity : SurzCoverage : Surz & Russell

Page 45: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

IMCA ResearchIMCA ResearchCandidates: Barclays, Barra, Dow Jones, IIA, OakBrook, Parametric, Prudential, Russell, S&P, Salomon, Surz, Wilshire

Criterion: Best Average Fit ( Adjusted R2) Separate Account Winners:

Russell, Surz, S&P/BGIRussell, Surz, S&P/BGIMutual Fund Winners:

Russell, Surz, WilshireRussell, Surz, Wilshire

Page 46: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

Surz Stuff is FREEFREEwww.PPCA-Inc.com

Page 47: The Future The Future Evaluate Skill NOT Style Performance Measurement Performance Measurement And Attribution.

The The FutureFuture

Style matters

Returns-based

complements

holdings-based Evaluate Evaluate StyleStyle