Portfolio Manager Skills Assessment II

What metrics can be used to represent the degree of conviction?

1. The level of risk measure
2. The amount of overweight to a reference benchmark

What is a metric that can be used for a large number of portfolios?

The level of weight we put in a trade. It assumes that the more conviction we have in a strategy, the more weight we put into it. The weights are separated into four brackets.

• 0% to 1%
• 1% to 2%
• 2% to 3%
• Above 3%

What metric can we use to assess a behaviour drift?

To investigate this, we can monitor the evolution of some metrics, an obvious example of which is how long we have been holding the position since the last decision. It is important to mention that a change of investment strategy is normal and is a rather healthy way to adjust to changing market conditions. A drift is not necessarily good or bad.

What is the objective of analysing the timing of decisions?

1. Identifying if there is any intended or Unintended bias in the decisions we make. This is achieved by looking at the behaviour of the stock prior to the decision
2. Measuring how well timed the decision to implement each strategy is. This is achieved by analysing the behaviour of the stocks after the decision is made

What are portfolio managers' timing profiles?

Each portfolio manager will have a different timing profile depending on their area of focus, their investment process, and the market they are in.

• Some teams will focus more on the Buy and sell decision, with a limited trading around using Scale ups and downs
• Some others will use a buy decision to get the first foot in the stock. As a result their Success in timing on Buy can be limited. However they focus more on finding the right moment to increase, reduce or sell out the stock

What are the benefits in assessing timing decisions?

• Can provide valuable input to understand the investment style
• Helps to describe the potential investment biases behind the investment decision
• A valuable input to build a roadmap on what features to focus on to improve the future performance