Behind the scenes, we have been working hard to create a unified, standardized, and informative Factsheet. The Factsheet allows you to inspect strategies, and gauge the competitiveness of a particular manager, compared to peers and benchmarks. This report is available on a bespoke basis and is currently only available upon request.
The report comprises five pages, the first one shows the manager compared to the NilssonHedge indices, including a number of stylized statistics. We volatility adjust the indices to the manager’s volatility.
Here we note that some of the NH Indices have large volatility compression, as they are highly diversified. About 2/3rds of the individual manager’s volatility is diversified away (the median manager has approximately 10% annualized volatility and our index has a volatility of about 3.5-4.0%). Thus, the volatility-adjusted index is hard to beat. Pages three and four will alleviate some of the problems with risk-adjusted index returns.
The second page plots various risk statistics:
- The Drawdown chart, compared to the relevant benchmark. We highlight the deepest drawdown and also the longest recovery period.
- Annualized Risk (here we take a shortcut and use the standard deviation of returns). Here also compared to the main style index.
- The third chart shows a rolling 36-month correlation against a set of indices. We are currently experimenting with the number of benchmarks to include.
On pages three and four, we compare the manager to a broad peer group. Here we calculate every the VAMI of each and single competitor in their style group. At every point, we find the 25th and 75th percentile cutoff. This removes the volatility compression that can be found in indices and may thus be a better way to assess the quality of any single manager.
In addition to calculating the dispersion, we present the more traditional box plots. These are periodic returns and give any manager or allocator a quick way to understand the market environment a strategy performs strongly or poorly.
The fourth page contains volatility-rescaled data and may give different results for managers that are either more or less volatile than the median. This is a way to highlight the risk-adjusted returns. We also present the result of the highest correlated peers above a dynamic AUM threshold.
The sample factsheet can be downloaded below. Please note the disclaimer on the fifth page.