Advanced Portfolio Analytics: Performance Appraisal, Risk Measurement and Attribution

3 days
Prague, NH Hotel Prague

This course provides participants with comprehensive and detailed methods used in investment performance and risk analysis. Particular emphasis is placed on being able to handle the risk and return dimensions in an integrated manner using the latest quantitative concepts to handle non-normal and non-linear tail risks. The program finally focuses on applications like performance appraisal, risk management and operating a performance measurement function in an organization.

Attend this intensive 3-day training and learn to:
  • Understand time-weighted and money-weighted return calculations
  • Handle derivatives, short positions and perform security-level calculations
  • Learn about performance measurement industry standards
  • Conduct performance appraisals with benchmark and peer groups
  • Analyse traditional and alternative investment portfolios with Brinson-style attribution methodologies
  • Understand the peculiarities of fixed income attribution models
  • Attribute currency effects for international portfolios, portfolios with currency overlay managers and strategic currency hedging
  • Understand the use of factor models in portfolio analysis
  • Use style analysis to attribute performance when no constituent data is available
  • Learn about the latest risk indicators capturing tail risk, non-normal risks, tail risk and non-linear dependence
  • Calculate risk attribution consistent with your performance attribution
  • Enhance your practical skills with spreadsheet example calculations for various quantitative methods discussed
  • Put into perspective some of the more recent industry trends (smart beta, factor-based investing)
The training consists of classroom-based teaching combined with selected group exercises and spreadsheet-based example calculations.

This course has been designed for the benefit of:
  • Research analysts
  • Portfolio managers
  • Mid-office personnel
  • System developers
  • Risk managers
  • Reporting specialists
  • Fund analysts
  • Quantitative investment analysts

09.00 - 09.15 Welcome and Introduction

09.15 - 12.30

Simple Returns

  • Why percentage returns?
  • Calculation of simple returns
  • Aggregating returns overt time
  • Aggregating returns across portfolios with weighting schemes
  • Single-period and multi-period returns (chain-linking)
  • Average returns: arithmetic and geometric averages

Returns with Contributions

  • The impact of contributions and withdrawals to capital invested
  • Money-Weighted Return
    • International Rate of Return
    • Approximations
  • Time-Weighted Return
    • True TWR
    • Dietz and Modified Dietz approximations
    • Unit-value method and related methods
  • The relationship between MWR and TWR
  • Industry trend: Going in Circles - from TWR to MWR and (maybe) back

12.30 - 13.30 Lunch

13.30 - 17.30

Portfolio Accounting Basics

  • Basic relationships between ending and beginning market values
  • Selected issues: treatment of transaction costs, the net-of-fee and gross-of-fee perspectives and trade date versus value date
  • Currency aspects: exchange rates, position and portfolio currencies

Selected Topics in Applied Return Measurement

  • Position-level return calculations
  • Aggregating portfolio returns
  • Derivatives: Future and options, swaps, currency forwards
  • Leverage and investment risk and return
  • Risk and return with short positions

Investment Return Reporting and Presentation

  • Reporting investment performance
    • Internal clients
    • External clients
  • Behavioral finance aspects
  • Regulations: MiFiD and more
  • Industry standards:
    • Some history
    • GIPS
    • Other standards

Day Two

09.00 - 12.30

Performance Attribution Basics

  • Return contributions: calculation, the impact of transactions, chain-linking contributions
  • Active return: arithmetic and geometric
  • The difference between contribution to attribution analysis
  • Active investment management decisions
  • Attributing time-weighted and money-weighted returns

Basic Brinson Attribution

  • Deriving the Brinson decomposition
  • Understanding of the Interaction effect
  • Allocation with a hurdle rate (Brinson/Fachler)
  • Multi-period attribution: Available alternatives, cumulative attribution effects
  • Handling portfolio and benchmark investment universe mismatches
  • Evaluating hierarchical investment decisions
  • Evaluating non-hierarchical investment decisions
  • Is there really a selection effect? Reconciling Brinson with Markowitz and making sense of the debate about the relative importance of allocation and selection
  • Evaluating pure selection decisions
  • Conditional attribution effects

12.30 - 13.30 Lunch

13.30 - 17.30

Advanced Brinson Attribution

  • Long/short attribution
  • Multi-Manager attribution
  • International portfolios
    • Spot currency effects
    • Expected and unexpected currency return components
    • Currency hedging
    • Karnosky/Singer attribution

Factor Attribution and Style Analysis

  • Introduction to factor models
  • Multi-factor attribution
  • Style attribution
  • Hybrid models
  • Industry trend: factor-based investment strategies

Day Three

09.00 - 12.30

Fixed Income Attribution

  • Bond valuation basics
  • Introduction to the yield curve
  • Fixed income return components
  • Modeling duration
  • Brinson-style fixed income attribution (van Breukkelen)
  • Commercial fixed income attribution models

Risk Measurement and Attribution

  • Introduction to measuring investment risk
    • Dispersion-based risk: Volatility and Tracking Error
    • Loss-based risk: VaR, CVaR, LPM/UPM
    • Interim risk: Drawdown, Drawdown-At-Risk, Conditional Drawdown-At-Risk
  • Volatility and tracking error decomposition
  • Stylized empirical facts about non-normal return distributions and non-linear dependency in financial market data
  • Tail risk attribution
    • Contributions from non-normality
    • Contributions from excess kurtosis and skewness
  • Risk analysis before the trade: trade-risk profiles

12.30 - 13.30 Lunch

13.30 - 17.30

Risk-adjusted Performance and its Attribution

  • The link between risk and return
  • Industry trend: risk-based investment strategies (risk parity, Smart Beta)
  • Traditional risk-adjusted measures
    • Sharpe and Information ratio, M2
    • Treynor ratio, Alpha
  • Alternative risk-adjusted measures
    • Sortino Ratio, Modified Sharpe Ratio
    • Omega, Ulcer Index, Farinelli/Tibiletti Ratio, Generalized Rachev Ratio
    • Sterling Ratio, Calmar Ratio, Burke Ratio
  • Risk-adjusted performance attribution: the Ankrim decomposition
  • Introduction to decompositions of Information and Sharpe ratios

Performance Appraisal

  • The importance of appraisal
    • For investors
    • For investment managers
    • Other stakeholders
  • Quantitative methods for fraud: the Madoff case
  • Benchmarking: Characteristics of good benchmarks
  • Peer group analysis and potential biases
  • Behavioral Finance aspects
  • Performance measurement in an investment management organization

Evaluation and Termination of the Seminar

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