Marginal Contribution to Risk (MCTR) / Marginal Contribution to Expected Tail Loss (MCETL) – These statistics show how much additional risk would be added to the portfolio if an additional 1% were to be invested in that specific manager. If the measure is positive for a portfolio fund, increasing the allocation by 1% to that fund would increase the portfolio’s risk. If the measure is negative, increasing the allocation by 1% to that fund would decrease the portfolio’s risk. Therefore, a negative MCTR/MCETL is a preferred characteristic for an investment. MCTR uses Standard Deviation as the risk measure; MC ETL uses Expected Tail Loss.
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.