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Alpha - A positive alpha is a measure of how much a fund has
outperformed its benchmark, and a negative alpha is a measure of how
much a fund has underperformed its benchmark. It is often seen as a key
measure of the added value of an active fund manager.
Annualised return - The rate of return on your investment on an
annual basis. In other words what annual return you would need to have
achieved each year to get to your overall return. e.g. 1000 invested in a
deposit fund returns 13% over 3 years to give 11 30. Annualised return is
4.16% where 1000 x 1.0416 x 1.0416 x 1.0416 = 11 30.
Beta - Beta is a measure of how closely the performance of the fund
has mirrored its chosen benchmark. If the Beta is 1 then it is exactly
the same. Beta of 1.5 implies that a fund has risen/fallen by 50% more
than the benchmark. Passively managed funds aim for a Beta of 1.
Information ratio - The information ratio assesses the degree to
which a fund manager uses skill and knowledge to enhance returns.
This is a versatile and useful risk adjusted measure of actively managed
fund performance, calculated by deducting the returns of the
fund benchmark from the returns of the fund and dividing the result
by its tracking error. It is generally considered that the higher the
number the better, with 0.75 reflecting a very good performance and
1.00 outstanding performance, with the caveat that the R-Squared
correlation between the fund and its benchmark must be strong if any
reliance is to be placed upon the information ratio.
Max loss - Represents the worst possible return over a specified
period.
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Positive periods - Indicates the number of positive monthly returns
over a specified timescale.Relative return Statistics showing the
percentage outperformance (or underperformance) of a fund relative
to its benchmark.
R-Squared / R2 - The percentage of a portfolio`s total return explained
by market movements. The maximum value is 1, indicating that
the fund exactly followed the movement of the benchmark while
progressively lower values indicate a lower correlation with the
benchmark.
Sharpe ratio - The Sharpe ratio is a measure which calculates the
level of funds return over and above a notional riskfree investment
such as cash. This difference in returns is then divided by the funds
volatility to give a ratio that indicates excess return per unit of risk.
Useful when comparing similar funds or portfolios the one with the
higher ratio has generally achieved more return while taking on no
more risk than the others. There is no definition of a good or bad
Sharpe beyond the thought that a fund with a negative Sharpe ratio
would have been better off investing in riskfree products.
Volatility / 3 year volatility - Three year standard deviation is used to
represent volatility, and demonstrates a fund`s propensity to rise/fall in
value over a specified period of time.
Standard deviation measures how far actual fund returns have deviated
from the sector average. The more a fund`s returns have varied from
the sector average, the higher the volatility.
The volatility of a fund is partly attributable to the assets in which it
invests, for example, a fund that invests totally in equities is likely to
have a higher volatility than a fund solely invested in cash.
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