If your managing a fund that is allocated in equities scattered all over the map and includes a small fixed amount of income and commodities exposure. What are you most likely using as your performance benchmark? What if less than half your portfolio is in international equities (the rest US) but the FI and commodities exposure still exist?
You can use a blended benchmark. So say you were 60% LC US stocks, 10% Int’l, 10% EM, 10% US FI and 10% cash you could do 60% S&P, 10% MSCI EAFE, 10% MSCI EM, 10% LB AGG, 10% T-bills.
Might have to use a custom/blended benchmark depending on your asset allocations .
bigwilly Wrote: ------------------------------------------------------- > You can use a blended benchmark. So say you were > 60% LC US stocks, 10% Int’l, 10% EM, 10% US FI and > 10% cash you could do 60% S&P, 10% MSCI EAFE, 10% > MSCI EM, 10% LB AGG, 10% T-bills. Do people actually do this type of thing in practice?
Okay, cool, thanks fellas.
Yes, but if you are doing this for a client then it must be set when and how the benchmark si to be rebalanced. Some do it off the beginning of the month allocation, beginning of the quarter or beginning of the year allocations.
So assuming you rebalanced every quarter, you would compare your fund performance to the benchmark. When the quarter ended you would re balance the benchmark (to the original allocation percentages) and manage against it. So basically you’d be managing against the benchmark on a “whatever” period basis, until you re balance and start again. Annual performance would just be a roll up of the periodic performance. Sound about right, or am I off?
Yes, your annual performance will be the linked returns of your monthly performance. For rebalancing I’ll show a simple example with Quarterly rebalancing. January 1st: 50% LC Equities 50% FI in my portfolio Benchmark for 1Q: 50/50 S&P/LB AGG This will be your benchmark allocation for daily/monthly benchmark returns regardless of the actual allocation changes due to performance for the 1Q. April 1st: 60% LC Equities and 40% FI in my portfolio. Benchmark for 2Q: 60% S&P, 40% LB AGG. This will be your benchmark allocation for daily/monthly bench returns for 2Q. And so on… Of course you could have something where if you rebalance your portfolio outside of a certain band then the benchmark would be rebalanced as well…
Ahh, so you can get creative if you have mandates. Interesting, I like this concept.
Yes you can get creative, or for the above you could be mandated to manage to a 60/40 split fixed benchmark and you are allowed say +/-10-20% deviation in teh portfolio from those weightings. It all depends.