Quantitative Analysis
Quantitative analysis is the science of the analysis. It is done to help us understand the statistics including the following:
Annual vs. Annualized Returns
1. How do the annual returns stack up to the appropriate benchmarks?
2. Longer term annualized returns can distort short term volatility..
Peer ranking
1. Determining the appropriate peer universe
- easier with traditional asset manager than with the “alternative managers”
2. Short term performance variances are more common than longer term performance variances.
3. Can be a good measurement of whether the manager has style drift or a mis-matched benchmark.
- Out performance of the universe in a good market and underperformance of the universe in a bad market is a red flag
Volatility
1.Annualized returns needs to be compared to the managers underlying performance volatility and investment time horizon? - Drawdown-recover review
Comparison to the benchmarks/indexes
1. Is there an appropriate benchmark or index?
– Can be difficult with alternative managers.
2. Composition of the benchmark?
– Over-weighting to the particular issues (or sectors)
I.e.: S&P 500 in the late 90s or high yield credit with the inclusion of the auto finance companies