eVestment Guide To Investment Statistics

The eVestment Guide to Investment Statistics will assist you in gaining a better understanding of how to derive meaningful conclusions from investment statistics.


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Benchmark Ratios

Benchmark ratios are also useful in evaluating investments. These ratios provide information in a single number about a fund's performance relative to a benchmark. Obviously, the selection of an appropriate benchmark is critical.

Active Premium: The simplest benchmark ratio is the "active premium," which takes the fund's annualized return, and subtracts the benchmark's annualized return to yield the fund's gain/loss that is over/under the benchmark (i.e., the excess return). Positive active premium is good, while negative active premium is generally bad. In Table 4, the active premium of -1.31% tells us that, overall, the fund underperformed the index.

Up and down capture ratios are also helpful when evaluating investments.

Up Capture Ratio: The up capture ratio is a measure of a fund's cumulative return when the benchmark was up, divided by the benchmark's cumulative return when the benchmark was up. The greater the value, the better.

Down Capture Ratio: The down capture ratio is a measure of a fund's cumulative return when the benchmark was down, divided by the benchmark's cumulative return when the benchmark was down. The smaller the value, the better.

Up and Down Number Ratios: Up and down number values measure the percentage of time that an investment moves in the same direction as the markets. In Table 4, approximately 92% of the time the fund moves up and down with the benchmark. Unfortunately, this statistic doesn't yield much information about the fund's relative outperformance, so we combine these numbers with the proficiency ratios (up/down market percentage ratios) to glean more information about the fund.

Up Market Percentage Ratio: The up market percentage ratio is a measure of the number of periods that an investment outperformed the benchmark when the benchmark was up, divided by the number of periods that the benchmark was up. The larger the ratio, the better. In Table 4, the fund outperformed the index 54.5% of the time when the index was up.

Down Market Percentage Ratio: The down market percentage ratio is a measure of the number of periods that an investment outperformed the benchmark when the benchmark was down, divided by the number of periods the benchmark was down. The larger the ratio, the better. In Table 4, the fund outperforms the benchmark only 30% of the time when the benchmark was down. This would not be considered strong performance for a hedge fund manager.

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