Next gen summer 2011 investment performance

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Next gen summer 2011 investment performance

  1. 1. It’s all about IMPACTReviewing Investment Performance
  2. 2. Today’s Conversation Topics Your role as an Asset Owner Investment Advisor - Trusted Team Member and Service Provider Overview of Asset Allocation & Performance Expectations Where are the easy opportunities for Mission Related / Impact Investing? Where does mission and performance meet for a win- win in the road ahead? © Amplifier Strategies 2
  3. 3. Your role as Asset Owner It’s a lifelong long journey Learn the language of investing Define and align to your goals and values Understand your risk tolerance Know your liquidity needs Stay current on performance expectations Build a team (redundancy is ok) Self-actualization refers to fulfilling one’s individual potential: Maslows hierarchy of needs. © Amplifier Strategies 3
  4. 4. What does this meanfor your investmentstrategy?
  5. 5. Investment Advisors –Trusted Team Member and Service Provider It’s a relationship based on trust and transparency They are service providers – it’s their job to understand your goals They are paid on financial performance (which means this is really their job) Create the conversation - send them resources, request review meetings Expect Evolution…(require it) A source for education – Ask for examples, references, comparisons and plain English Manager performance is different from investment performance!!! (more on this) © Amplifier Strategies 5
  6. 6. A roadmap allows youto chart your course
  7. 7. Asset Allocation & Performance ExpectationsAsset allocation strategies are established to meet the individual needs of eachinvestor based on their time horizon (the amount of time their dollars will beinvested), risk tolerance and liquidity requirements.As a result, there is no one size fits all when it comes to asset allocation strategiesand the investment options available to meet them. Yale Model Asset AllocationResearch shows that its the asset allocation of investments that accounts for nearly 92% ofthe variability of returns for the total portfolio holdings.This is because each asset class has distinct characteristics and, historically, reactsdifferently under the same market conditions. © Amplifier Strategies 7
  8. 8. Benchmarks Benchmarks are passively managed portfolios of financial assets Benchmark are often expressed as an index that serves as the measurement yardstick for a portfolio by comparing portfolio characteristics such as returns, risk, component weights and exposure to sectors, styles and other factors to the benchmark.To be effective, a benchmark should meet most, if not all, of the following criteria: Unambiguous and Transparent—The names and weights of securities comprising a benchmark should be clearly defined. Investable—The benchmark should contain securities that an investor can purchase in the market or easily replicate. Priced daily—The benchmark’s return should be calculated regularly. Availability of historical data—Past returns of the benchmark should be available in order to gauge historical returns. Low turnover—There should not be high turnover in the securities in the index because it can be difficult to base portfolio allocation on an index whose makeup is constantly changing. Specified in advance—The benchmark should be constructed prior to the start of evaluation. Published risk characteristics – The benchmark provider should regularly publish detailed risk metrics of the benchmark so that the investment manager can compare the actively managed portfolio risks to the passive benchmark risks. © Amplifier Strategies 8
  9. 9. Performance Attribution – Active returnsThe difference between the portfolio return and the benchmark return is known as theactive return. The active return is the component of a portfolios performance thatarises from the fact that the portfolio is actively managed. Portfolio Benchmark Portfolio Benchmark Asset Stock Interaction Total Weight Weight Return Return Allocation Selection ActiveEquities 90 70 5 3 0.12 1.4 0.4 1.92Cash 10 30 1 1 0.28 0 0 0.28Total 100 100 6 4 0.4 1.4 0.4 2.2The attribution analysis dissects the value added into three components: Asset allocation is the value added by under-weighting cash (0.28%), and over- weighting equities (0.12%). The total value added by asset allocation was 0.40%. Stock selection is the value added by decisions within each sector of the portfolio. In this case, the superior stock selection in the equity sector added 1.40% to the portfolios return. Interaction captures the value added that is not attributable solely to the asset allocation and stock selection decisions © Amplifier Strategies 9
  10. 10. Alpha – How investment managers rank their performance Alpha is a risk-adjusted measure of the so-called active return on an investment. It is the return in excess of the compensation for the risk borne, and thus commonly used to assess active managers performances. Often, the return of a benchmark is subtracted in order to consider relative performance, which yields Jensens alpha. αi < 0: the investment has earned too little for its risk (or, was too risky for the return) αi = 0: the investment has earned a return adequate for the risk taken αi > 0: the investment has a return in excess of the reward for the assumed risk For instance, although a return of 20% may appear good, the investment can still have a negative alpha if its involved in an excessively risky position. © Amplifier Strategies 10
  11. 11. certainty plan
  12. 12. Near-Term ResultsLong-Term Context
  13. 13. Opportunities for Mission Related / Impact Investing Yale Model Asset Allocation © Amplifier Strategies 14
  14. 14. MRI / Impact Investment Spectrum Traditional Investment Models Mission Impact First Finance First Profit Only Intent Philanthropic Impact with Market rate Maximize below returns with profit market some impact returns Impact return High Low Financial return Low High © Amplifier Strategies 15
  15. 15. Working WithinConstraintsEvery investment involves a trade-off
  16. 16. Mission and Performance Meet for a Win-Win © Amplifier Strategies 18
  17. 17. The Path ForwardLook for Quick WinsExplore and LearnIncentivize ChangeAsk for HelpHave Fun
  18. 18. Creating high-impact, lasting results for humanity and the earthQuestions?Contact Info:Allison Duncan, CEOAmplifier Strategiesallison@amplifierstrategies.comPhone: 510-350-3707

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