Performance Evaluation

The performance evaluation of an investment portfolio is designed to appraise the quality of the asset manager’s work by analysing the outcomes achieved and the ways in which these results were obtained. This activity involves the identification of: (1) return on the investment portfolio, accounting for alternative calculation methods and selecting the most appropriate one, depending on the objective pursued; (2) portfolio risk, in its various absolute, asymmetric, and relative forms, and the related risk-adjusted performance indicators; (3) the asset manager’s ability to perform effective stock picking by selecting the best stocks on the reference market; (4) the asset manager’s ability to perform profitable market timing through effective tactical asset allocation, by temporarily overweight the sectors and asset classes which will outperform the market and, at the same time, underweight those which will underperform; (5) performance persistence, understood as an evaluation of the continuity and frequency with which the asset manager ranks in the best percentiles of his/her reference peer group.