ETL (Expected Tail Loss) – The average expected loss beyond VaR is also known as Conditional Value at Risk (CVaR) or Average Value at Risk (AVaR). It can be interpreted as the expected shortfall assuming VaR as a benchmark. ETL does not have the deficiencies of VaR as it is a true downside risk measure which can recognize diversification opportunities and has good optimality properties. ETL is a sub additive measure and therefore can be used to aggregate or decompose risk at the portfolio or strategy levels. This is why ETL is the risk measure used as the basis for risk budgeting.
Investors who are required to select and monitor investment managers should develop a basic understanding of investment statistics. Quantitative tools can provide you with good insight that you can use in your qualitative interviews with managers and when monitoring your investments.