making sense of 100's of funds
Toby, Thanks for the tips. I am somewhat of a cynic also. When it is my own retirement fund, academic meets real-life in a fairly personal way! I have heard figures that something like 98% (from memory) of Australian's "don't understand superannuation". I am trying to get myself well into the 2%. Writing R code leveraging some of the great packages out there is just a method of learning which I find works for me. It can be slow going at times though. I have picked out 8 funds to crunch through and using the ASX SP200 as the benchmark for exercising my code. My "practice" data set is at http://www.metrak.com/tmp/exitprices.csv and I retrieved the SP200 using get.hist.quote("^AXJO", start="2002-01-01", quote="Close", retclass="zoo"). I have used CalculateReturns from PerformanceAnalytics to create returns as zoo objects so hopefully I will be able to calculate the alphas. If I understand your comment below, I am looking for a more positive intercept on my choice of fund compared with the benchmark? cheers
Tobias Muhlhofer wrote:
Paul, Unless you are looking at index funds, you need to see whether your funds produce alpha. To do this, pick a set of benchmarks according to your fund's style and investment strategy, like Morningstar category index or something like that (or perhaps just the general stock market plus the two Fama-French factors), regress the fund's returns on the benchmark returns, and see whether you have a significantly positive intercept after fees. This is the best way of measuring systematic-risk adjusted returns. Being a finance academic (and therefore a cynic), and judging from my own research, if benchmarked correctly, very few fund managers generate positively significant alphas, and so I personally buy index funds for whatever style I want to invest in, and there I choose the one with the lowest expense ratio. Best, Toby
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