Disclaimer

BY CLICKING ON “I AGREE”, I DECLARE I AM A WHOLESALE CLIENT AS DEFINED IN THE CORPORATIONS ACT 2001.

What is a Wholesale Client?
A person or entity is a “wholesale client” if they satisfy the requirements of section 761G of the Corporations Act.
This commonly includes a person or entity:

  • who holds an Australian Financial Services License
  • who has or controls at least $10 million (and may include funds held by an associate or under a trust that the person manages)
  • that is a body regulated by APRA other than a trustee of:
    (i) a superannuation fund;
    (ii) an approved deposit fund;
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme.
    within the meaning of the Superannuation Industry (Supervision) Act 1993
  • that is a body registered under the Financial Corporations Act 1974.
  • that is a trustee of:
    (i) a superannuation fund; or
    (ii) an approved deposit fund; or
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme
    within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million.
  • that is a listed entity or a related body corporate of a listed entity
  • that is an exempt public authority
  • that is a body corporate, or an unincorporated body, that:
    (i) carries on a business of investment in financial products, interests in land or other investments; and
    (ii) for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82 of the Corporations Act 2001, the terms of which provided for the funds subscribed to be invested for those purposes.
  • that is a foreign entity which, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.
I Disagree
How do you assess the track record of a strategy?

How do you assess the track record of a strategy?

25-02-2015 | Insight

How do you assess the track record of a strategy in order to ensure the best possible future returns? The solution to this problem was discovered by former Guinness employee, William Sealy Gosset. He needed a cheap way to test the quality of barley for brewing beer and devised the t-value to tackle the problem of drawing conclusions based on a small sample size using a formula known as the t-statistic.

The formula can be applied to many industries, including finance, because investors often face a similar problem of not having an unlimited sample size. The t-value can be used to test the statistical significance of excess returns - the returns of a strategy relative to an index. The standard deviation of these returns is the tracking error (TE). Once the t-value is calculated, it can be compared to the t-statistic for T-1 degrees of freedom and a 95% significance level. The outcome of this can be determined by the standard t-tables.
If you apply this formula to Robeco Core Developed Markets* (Institutional Global Enhanced Index fund), which has an average annual outperformance since inception relative to the MSCI World of 1.17%, a TE of 1.09%, and IR of 1.08 and a >10-year track record, the t-value is 1.09*√10.1= 3.46. This is statistically significant; because the critical t-statistic for 95% significance is 1.86.

* The value of your investments may fluctuate. Past results are no guarantee of future performance.

Stay informed on Quant investing with monthly mail updates
Stay informed on Quant investing with monthly mail updates
Subscribe
Subjects related to this article are: