Advanced Portfolio Analytics: Performance Appraisal, Risk Measurement and Attribution

Day One

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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