Performance and Characteristics
Understanding Portfolio Construction & Monitoring
What we look for...
- Below-average fees
- Above average reward/risk characteristics such as Sharpe ratio and performance relative to peers
- Manager tenure is important
- Asset size is important – we don’t want to be a large enough fraction of the fund’s total assets under management that we are unable to liquidate if the need arises.
- Minimal style drift – when we invest in a large cap growth fund we don’t want to discover several months later that its portfolio has changed so that now it is acting like a mid cap value fund.
How we monitor our managers
The criteria for a fund being placed on the watch list includes:
- Underperformance of a blended index for four consecutive quarters OR 6 of the last 8 quarters OR
- The fund ranks in the bottom 50th percentile for four consecutive quarters OR 6 out of the last 8 quarters OR
- Morningstar drops the fund to a 3 star rating for both the 3 and 5 year periods and the fund has an average percentile ranking from the 51st to 100th percentile
- If a fund is placed on the watch list up 50% of the fund may be sold if approved by the investment department
The criteria for a fund being replaced, after having previously been placed on the watch list are:
- Underperformance relative to the blended index for 8 of the last 12 quarters OR
- The fund ranks in the bottom 66th percentile 8 of the last 12 quarters OR
- Morningstar drops the fund to a 2 star rating based on the fund’s 3 year record. This means that the fund is in the bottom third of its category.
How we determine our equity exposure
Each month our Investment will monitor asset valuation and market dynamic factors through the following 4 channels.
We will review the historical equity-weighting recommendations within the BCA, Fed, Leuthold and Ned Davis model. These four models will be aggregated and equally weighted in determining the equity over/underweight’s that are to be applied to our Core portfolios