Hoadley Portfolio Style Analyzer
The Hoadley Portfolio Style Analyzer
applies the returns-based methodology, originally
developed by William F Sharpe,
to analyze the investment style of a mutual fund or other investment portfolio.
This approach uses quadratic programming to determine the
combination of positions in passive indices, style benchmarks, or asset classes that
would best replicate the performance of a fund or investment portfolio over a specified time frame.
Given the ready availability of free passive style returns
data from organizations such as Russell Investment Group and Wilshire (for
details, see Using the Style Analyzer), the Hoadley Portfolio Style Analyzer provides a competitive alternative to
those style analysis
services which are only available through ongoing subscription.
The two main outputs produced by Style Analyzer are the
Fund Style Analysis and the Style History Analysis. Both outputs are
shown graphically and in tabular form.
|
Portfolio or Fund Style Analysis |
This shows for the entire period of the returns (eg five
years) the combination of passive benchmark weights which best explains
the performance of the portfolio.
The style history analysis uses a rolling window to
examine how the fund's or portfolio's style has changed over time.
This provides a powerful insight into the consistency of the fund or
portfolio manager and, if the style has changed over time, an indication
of how it has changed.
The rolling window size can be specified by
the user. Normally a window size of 24 to 36 months will smooth out short
term anomalies and noise while still remaining sufficiently sensitive to longer term changes
and trends.
A drawdown is the loss incurred in a fund or portfolio from any high point
in the fund's value until the fund recovers
that
value. The Style Analyzer produces a comprehensive drawdown analysis both in
table and chart form.
For instance, The "Time Under Water" chart
(below) shows all drawdowns for the analysis period so that the maximum drawdown -- the drawdown size,
duration, and duration of recovery -- can be viewed in the context of all drawdowns.
A summary is also produced of the top three
drawdowns in table form showing the amount, start date, end date, and
recovery end date for each drawdown.
Other outputs
produced by the Style Analyzer include:
 |
Mean annualized returns, geometric (compounding) returns, and annualized
volatilities for the fund, the individual passive benchmarks, the
aggregate style benchmark, and the selection (active management).
|
|
Beta and R-Squared of the fund in relation to the aggregate style
benchmark.
|
|
Percentage of the fund's performance due to active management (ie active risk
exposure,
which includes both active deviations from a beta of 1, and
asset-specific, or residual, risk).
|
|
Percentage of the fund's or portfolio's performance due to asset-specific
factors only (ie
residual risk exposure which is not correlated with the style benchmark).
|
|
Selection Sharpe ratio (active information ratio) and T-Statistic.
|
The inputs to the Style Analyzer comprise the returns
for the fund or portfolio, and the returns for each of the passive
benchmarks. Normally monthly returns are used, but the application
will accept data of any frequency.
There are free sources of data available for the passive
style benchmarks, as well as subscription services. Two free sources which provide facilities to download monthly returns data to
CSV or XLS files are:
Any number of benchmarks can be used. Examples of
benchmarks include growth, value, large cap, small cap, small cap
growth, small cap value.
To use the Style Analyzer you simply copy the returns
for the fund and relevant benchmarks to the Style Analyzer's data sheets
and press one button.
The Hoadley Portfolio Style analyzer application is
included in the price of the Finance Add-in for Excel.
When purchased under a private-use license the number of
returns that can be processed by the application is limited to 12, or a
maximum of one year's worth of returns.
To handle more than 12 returns and more than one year's
worth of returns a corporate/commercial license is required for businesses
(Commercial
licensing enquiries) or a "Pro" license for private investors ("Pro"
licensing enquiries).
The Hoadley Portfolio Style Analyzer will run on versions
of Microsoft Excel 2002 and above on Microsoft Widows 2000 or above.
The
Hoadley Finance Add-in for Excel version 10.1f or later must be installed before
using the Portfolio Style Analyzer.
|
Download the Hoadley Portfolio
Style
Analyzer |
The Hoadley Portfolio Style
Analyzer is free and
is included in the same download file as the
Hoadley Portfolio
Optimizer. However it
requires the full version of the
Hoadley Finance Add-in
for Excel.
Register and download.
|
