Performance measurement and comparison is a sport in its own right in the asset management industry. Consultants’ databases are being challenged by web-based providers, and numerous rating systems compete for the attention of potential investors. However, the question of the real comparability of data remains. A slight difference in benchmarks, investment universes, transactions costs or even valuation rules can ruin the end conclusions. The limited and delayed access to the detail of holdings further reduces the measurement possibilities. It quickly becomes difficult to extract the true manager’s alpha from all the noise.
As behavioural finance has taught us, poor quality, redundant data is a large source of decision biases. Namely, investors tend to give too much attention to short-term relative performance figures, compared to absolute or risk-adjusted, long-term measures.
An elegant solution, proposed by the amLeague* is to organise a paper trading game: managers who want to take part accept the common methodology and send orders, as if they were managing a real portfolio. The website then processes those simulated orders, including a brokerage cost and market impact, to publish real-time and thorough measures on the portfolios of all contestants, with a common methodology.
Just as in football, where nobody would ask Ibrahimovic to play in goal, these measures illustrate that each strategy has its own style. None can be best under all performance measures and in all contexts. Here are for instance the winners as of September 2014, for 1-year and 6-month periods.
THEAM has taken part in this competition since February 2012, with our Low Volatility and Guru strategies, in 4 of the 5 universes. The pure Low Volatility strategy performs well, in the global equities universe, on risk-adjusted measures (Sharpe ratio, Black-Treynor ratio, volatility) :
Most of these mandates have real-life fund equivalents, but some strategies, like the Low Volatility SRI Europe equities, have been launched just to prove the validity of a concept. It’s pretty much like training a substitute, which is always handy, whatever the sport…
- * amLeague provides its IT platform to asset managers who are willing to demonstrate their ability to generate active performance under common guidelines issued by professional investors, thus making products comparable. It provides facilities to asset managers to build “amLeague inside” products and it offers access to these products on its platform.
- BNP Paribas Investment Partners’ euro equities strategy on the amLeague platform is designed to capture incremental return through security selection, while substantially lowering risk relative to capitalisation-weighted indices. The strategy is managed by THEAM.
- Investments in the funds are subject to market fluctuations. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performances or achievement is not indicative of current or future performance