This document analyzes the confidence in a manager's performance over 10 years and 8 months ending on December 31, 2001. It shows the manager outperforming the Russell 2500 Index but within the 25th-75th percentile range. This indicates a chance of at least one in four that the outcome was due to luck rather than skill. Therefore, no points would be awarded based on the confidence interval analysis, even though there was a positive active return.

1. Figure
Manager Confidence Analysis
Smith & Co. Capital
10 Years 8 Months Ending 12/31/01
1.75
95th
1.50
Manager
75th
1.25
Russell 2500 Index
1.00
25th
0.75 5th
0.50
0.25
0.00
Oct-91
Oct-92
Oct-93
Oct-94
Oct-95
Oct-96
Oct-97
Oct-98
Oct-99
Oct-00
Oct-01
Apr-91
Apr-92
Apr-93
Apr-94
Apr-95
Apr-96
Apr-97
Apr-98
Apr-99
Apr-00
Apr-01
The confidence interval measure has several desirable properties. First, it captures performance relative to
benchmark and thus passive implementation, making it a valid measure of active return. Second, it adjusts for
active risk, in a manner analogous to the information ratio. Third, it takes into account the entire period over which
a result is achieved, and thus avoids undue reliance on subperiod performance, and recent history in particular.
And finally, it provides a numerical estimate of the likelihood that any particular outcome may be attributed to skill
rather than luck.
We award no points if the confidence interval associated with the final observation is below the 75th percentile,
indicating at least one chance in four that the outcome is the result of chance. We award 1 point for a value falling
between the 75th and the 95th percentiles, and 2 points for values beyond the 95th percentile; the latter indicates
less than a 5% probability of a chance result. In the case of Smith & Co., we would award no points, even though
there is a positive active return.
©2002, Ennis Knupp + Associates, Inc.