Of the funds examined (which included exchange-traded funds, and funds comprising wholly or significantly passive holdings), only 178 (4%) outperformed a rules-based passively managed index portfolio of one global equity index and one global bond index, for equivalent volatility.
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Benchmarking a multi-asset fund is different to benchmarking a fund in a single asset class or sub-class. In the latter case, once having selected the category, an investor uses the relevant traditional index as a comparative aid in fund evaluation or selection from the available set. However, when it comes to multi-asset funds, a two-dimensional benchmark is more helpful, recognising that a goal of portfolio construction is to optimise the risk-return trade-off.
I propose a risk-return locus of passive index portfolios (PIPS line) as a user-friendly ‘at a glance’ benchmarking method for evaluation of multi-asset funds (and potentially other portfolio management services). This approach benefits from being independent and rules-based, with no need to reference peer-group measures such as sector averages.
Download the full original paper, including charts.
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