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Managing my investments
Managing my investments

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4.2.4 The reporting of performance

The reporting of performance measurement varies from cursory to detailed, depending on the size of the investment. Managers of large pension funds have to provide their clients with detailed breakdowns of the risk and-return characteristics of their portfolios, and there are a number of consultants who specialise in such analyses. They also use the key measures such as tracking error and alpha.

When it comes to funds, such as investment trusts, OEICs and life assurance funds, more complex measures tend to be combined into a star-rating or number-rating system. This allows investors to identify good recent performers and high- or low-risk funds relatively easily.

It is rare to find a fund that significantly outperforms an index benchmark over the long term. It is very difficult to spot future winners, and past performance is not a guarantee of future performance, but analysing performance can and does say something about how the performance was earned and what kinds of risk an investor in the fund is likely to be taking on. It can also force investors to face the truth of their investment performance.

To finish this section, watch the video and hear Anthony Nutt’s observations on fund management performance and on whether chartism (that you studied in Week 3) is an aid to good performance.

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Activity 4.2 Assessing a portfolio’s performance

Suppose that you were asked to judge the performance of your share portfolio, which you have run with an internet broker for the past five years. How would you go about this?

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