Please do not move this to the “investments” forum. That place is just one step above the Feedback Forum WRT being lost forever.
Do not answer with “Level 3 Curriculum”.
So I have left the world of public accounting forever. (Well, maybe not forever. Might go back to it someday, if I have to.) I have moved to a full-time, full-service investment firm that doesn’t allow me to do any tax work or bookkeeping at all. (Thank God.)
I have been coined “Director of Investment Services”, and much of my job is going to entail analyzing investments (VA subaccounts, VL subaccounts, mutual funds, and SMAs) to present to clients.
Anybody have any good resources on how this stuff is calculated in real life? EG - I can see on Morningstar that the ABC fund has a beta of .93, an alpha of 1.42, and a Sharpe of 1.08. But how was that calculated? Does M* tell us what figures they use in their calculation? What indices they used? Do analysts generally prefer to look at 3-year figures or 10-year figures?
What publications do we go to in order to find out why XYZ fund underperformed its benchmark so badly? What market segments did well last year/quarter? Or why mortgage REITS are a better investment then CMO’s or government bonds?
What are some good resources to learn how to do this effectively and communicate the results to clients? (Or do clients ever even ask in the first place?)
I don’t subscribe to Morningstar, so I cannot say for certain, but it’s common practice to use 36 months of returns compared to the S&P 500 to calculate beta (and, I’d presume, similarly, alpha and Sharpe).
You might get those details by looking at a particular fund and doing some digging. Their glossary doesn’t specify how they do the calcularions. (However, to their credit, their glossary avoids most of the stupidity that other financial websites include in their description of beta.)
research a list of shops/funds you are interested in… lean on wholesalers initially… some are dogshit but most of the top tier AM shops have really smart externals. don’t be a piker, but let them know you are interested in dripping a shit ton of cash their way… then set a meeting (i advise forwarding the questions in advance so that way they can arrive prepared and wont waste your time). most questions you asked can be easily answered by an internal or external but some questions may take a little digging. since the wholesaler has pitched their product a million times, figured out how he best constructs the message then dumb it down slightly for your client.
edit: AM shops have to disclose how they report their metrics… they can provide that info
I have no idea, but on the question of whether or not to worry about if it’ll get asked, always assume YES. Far better to over-prepare than under. And there’s no better feeling than having the answer to a client’s gotcha question.
1.) @Mailsnoop - I’m not exactly the CIO of American Funds. Now that I’m on board, we have a total of six souls on staff. (The owner, the owner’s son, the owner’s wife, the girl who has worked here for 15 years, the receptionist, and me.) So even though I have an awesome title, it doesn’t really mean a whole lot. That’s not to say that it won’t mean more in the future–but only to the extent that I know what the heck I’m talking about.
2.) @rawraw - Yes, I’m a fan of ETF’s and passive investing. Keep it simple, and keep the number of funds low. But I’m not the owner. And if the owner likes having 20 active funds, then I will learn to like having 20 active funds, too.
3.) @Mike79 - This is my second week on the job, so there’s a lot I don’t know. But as best I can tell, we don’t do a lot of portfolio management–we let Morningstar and BNY Mellon do it (depending on portfolio size). We just “manage relationships” (whatever that means). It seems like if a client has 2m, they get BNY Mellon.
There’s also a big life insurance business (which is not really my forte) and a big VA business (which I need to brush up on). We also do a ton of 401k plans, which are going to be primarily my responsibility to run, which means I need to get familiar with TPA’s, 321 vs. 338, etc.
Yeah, it’s kinda bittersweet. I spent a lot of time in class taking accounting classes, took the CPA exam (which aint’ exactly the CFA exam, but it ain’t exactly the Series 6, either), and spent eight years doing tax and accounting. So it’s kinda hard to say goodbye to it, even though I know this is a better fit for my interests and personality.
On the other hand, I know I can always go back to it, if I decide to. And if I spend a few years doing this with a relatively sophisticated “investments-only” firm, I might be able to pitch an investments add-on to an established CPA firm. (Not that I aspire to do that. I’d like to hang on to this and do it for ever and ever amen.)
edit - It’s even more bittersweet because when I was 25, I had just gotten out of the Marines. I passed the 7 and 66 and got my life and health license, and started working in the investment world. Here I am, almost 13 years later, and I have my 7, 66, life & health, and I’m working in the investment world.
Now I’m wondering if all the MBA’s and CFA’s and CPA’s and 1040’s were a colossal waste of time, or if that will actually pay dividends. Who can say.