Latest news with #SharpeRatio
Telegraph
5 days ago
- Business
- Telegraph
‘I'm 50 with 10pc of my money in gold, how should I invest before I retire?'
Would you like Victoria to rate your portfolio? Email money@ with the subject line: 'Rate my portfolio'. Please include a breakdown of your portfolio, your age and what your investing goals are. Full names will not be published.* Dear Victoria, Could you please give me your thoughts and opinion on my exchange-traded fund (ETF) portfolio. It is for the long term as I am 50 years of age and I am intending to stay invested until my retirement age of 67 or 68. I know my bond allocation is quite low but I have quite a high gold allocation as a substitute hedge and so far it has done well in a downturn. My total expense ratio – the annual fee for the funds' operating expenses – is 0.13 and I have back-tested the portfolio and the Sharpe ratio (how investments have performed compared to risk-free assets) is 0.93. I also have a satellite fund portfolio that is separate but it makes up 5pc of my total investments. - Anon, by email Dear reader, It is good to see you've got a long-term plan – as they say, time in the market beats timing the market so giving yourself as long as possible to get to where you want to be financially sounds like a great idea. There's lots of things to like here including your use of ETFs. Building a portfolio via ETFs has become a popular strategy for many investors thanks to the vast amount of choice out there and their competitive, low costs. Within your ETFs you've got some good building blocks too – a manageable amount of funds spanning different asset classes and geographies. Your almost 10pc allocation to gold has served you particularly well lately. I don't know when you bought in, but gold investors have been enjoying the precious metal's boom of late. The World Gold Council said physically backed gold ETFs posted their highest half-year inflows since 2020 this year. Gold is seen as a safe haven and an inflationary hedge so it can help shield portfolios from Trump's tariff uncertainty and the geopolitical turmoil. These global dynamics pushed gold to an all-time high of $3,500 (£2,634) per troy ounce in April – it has gained around 30pc so far this year and around 40pc over the past 12 months. One thing I would question is whether your gold allocation is truly a 'substitute hedge' for a bond allocation as you suggest. While both are legitimately 'defensive' parts of a portfolio, they can behave very differently depending on market conditions. The main difference I'd highlight is the impact of inflation and interest rates. Gold typically rises amid price pressures in an economy, whereas inflation is seen as kryptonite for bonds as it eats into the 'real' returns of fixed income assets. Inflation also probably leads to higher interest rates, which means that existing bonds will have to fall in value for their yields to come into line with market rates. On the other hand, bonds could do very well if interest rates drop more than the market expects, such as in a recession. The outlook for gold would be less certain in a downturn, but bonds could deliver a significant portfolio boost. That said, at 50 years old and with a decent stretch of time ahead of you, your 10pc allocation to bonds looks appropriate. When you finally hit retirement, upping your allocation to a roughly 60/40 stocks-to-bonds ratio and de-risking your portfolio might make more sense. Xtrackers MSCI World Quality has been a great choice over the long-run, ranking just outside the top quartile of global funds over three and five years, returning 58pc and 85pc respectively. Performance has lagged a bit this year, but I wouldn't worry about that too much – you want steady performance from this tracker and so you wouldn't expect it to do as well as during rising markets, when racier shares (like tech stocks) are leading the charts as has happened recently due to the AI boom. With over 15 years to grow, I think you could benefit from some more tech-focussed funds. Artificial intelligence developments have only really just begun in my view, and I think there could be lots more gains ahead for companies involved as the tech advances begin to be integrated into products and company workflows. With that in mind, and given that you like listed funds, Invesco Nasdaq-100 Ucits ETF (EQQQ) could be a strong option – it owns the largest shares on the Nasdaq exchange, which is a who's who of US tech giants. While not an ETF, you could look at Scottish Mortgage (SMT) too, which is an investment trust that looks for fast-growing shares from around the world. It owns private as well as public stocks and the top positions are currently SpaceX, MercadoLibre, Amazon and Meta. Fees are exceptionally low for an active fund at just 0.32pc. Best of luck, - Victoria Victoria is head of investment at Interactive Investor. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.
Business Insider
20-06-2025
- Business
- Business Insider
Here are 10 stocks Goldman Sachs expects to be winners after a wild first half for the market
Goldman Sachs just updated one of its stock baskets with its picks for the highest risk-adjusted returns. The basket has outperformed the S&P 500 so far this year, gaining 3% year-to-date. The S&P 500's overall risk-adjusted return has been lower than usual so far this year, strategists said. It's been a volatile year for stock traders, but there are a handful of new winners in the S&P 500 that could be poised for big gains over the next 12 months, according to Goldman Sachs. In a note to clients on Friday, the bank said it updated its Sharpe Ratio basket, a list of 50 stocks with the highest expected risk-adjusted returns. So far, the basket has gained 3% year-to-date, edging past the S&P 500's 1.7% gain. The S&P 500's overall risk-adjusted return has been "lower than usual" so far in 2025, the strategists said, pointing to increased volatility and lower-than-average returns stemming from fears around tariffs. The bank rebalanced its portfolio by choosing stocks with a high prospective Sharpe Ratio, a gauge for risk-adjusted returns calculated by dividing a percentage return to a stock's consensus 12-month price target by its six-month option-implied volatility. "Currently, the median S&P 500 stock is expected to post an 11% return to its 12-month consensus price target with a 6-month implied volatility of 28, yielding a prospective risk-adjusted return of 0.4," the bank wrote. Here are the top 10 newest additions to Goldman's Sharpe basket. 1. Moderna Ticker: MRNA Return to consensus price target: 88% Expected return over implied volatility: 1.3 2. Viatris ELSA BIYICK/Hans Lucas/AFP via Getty Images Ticker: VTRS Return to consensus price target: 61% Expected return over implied volatility: 1.5 3. Enphase Energy Ticker: ENPH Return from consensus price target: 45% 4. PG&E Corp Ticker: PCG Return to consensus price target: 45% Expected return over implied volatility: 1.1 5. Thermo Fisher Scientific Return to consensus price target: 42% Expected return over implied volatility: 1.2 6. Fiserv Ticker: FI Return to consensus price target: 37% Expected return over implied volatility: 1.2 7. Cooper Companies EyeEmTicker: COO Return to consensus price target: 37% Expected return over implied volatility: 1.2 8. Salesforce Ticker: CRM Return to consensus price target: 37% Expected return over implied volatility: 1.1 9. Lennar Corp Ticker: LEN Return to consensus price target: 34% Expected return over implied volatility: 0.9 10. EPAM Systems Return to consensus price target: 33%
Economic Times
20-05-2025
- Business
- Economic Times
Is beating the benchmark enough? What the information ratio reveals
Tired of too many ads? Remove Ads Q. Let's start with the basics—what exactly is the Information Ratio? Tired of too many ads? Remove Ads Q. How do you see the IR reshaping the way investors assess fund managers, especially in an era of passive investing? Q. How is Information Ratio different from other ratios? Tired of too many ads? Remove Ads Q. What's the ideal time frame to evaluate the Information Ratio? Q. I noticed that multicap and contra funds often show a higher Information Ratio compared to large-cap or mid-cap funds over 3–5 years. Why is that? Q. How should investors use Information Ratio in conjunction with other metrics like Alpha, Beta, or Sharpe Ratio when selecting funds? Information Ratio shows how efficiently a fund manager has beaten the benchmark considering the risk taken. Alpha tells you how much excess return the fund generated. Beta indicates how sensitive the fund is to market movements—i.e., how volatile it is compared to the benchmark. Sharpe Ratio assesses return per unit of total risk, compared to a risk-free asset. Sortino Ratio focuses only on downside risk. Q. How can one interpret whether an Information Ratio is good or not? Q. What are some limitations of the Information Ratio? Are there risks to over-relying on it? Q. Lastly, SEBI is pushing for greater fund disclosures and transparency. Should the Information Ratio be highlighted more prominently in fact sheets? Excerpts:The Information Ratio (IR) is a performance metric that measures a fund manager's ability to generate excess returns over a benchmark, adjusted for the volatility of those excess shows how effectively a manager delivers better risk-adjusted returns compared to the benchmark.A higher IR indicates more consistent and efficient outperformance, while a lower IR suggests the fund is underperforming relative to its me give you a comparison: Suppose two large-cap fund managers both deliver a 15% return, beating their 12% benchmark by 3%. Now, if one of them took less risk than the other to achieve this, the Information Ratio will reflect that. The fund manager with the higher Information Ratio would be the preferred choice because he delivered the same return with less ratio highlights both consistency and efficiency in return question. There are two aspects here. First, should investors choose active or passive fund management?When we analysed mutual fund performance over the past five years—across categories like large-cap, flexi-cap, multi-cap, contra, etc.—we found that 60% to 100% of active funds beat the Nifty, and around 70% beat their own benchmarks, except in the large-cap yes, if you choose the right fund, active strategies still offer superior excess returns. Passive funds can't outperform the benchmark—they just mirror within active strategies, the Information Ratio helps you evaluate the quality of excess return. It allows you to choose fund managers who are not only outperforming but doing so with less risk. That's where this metric really becomes investors use the Sharpe Ratio, which compares a fund's return to a risk-free rate like a 6.5% government bond, adjusted for the Information Ratio compares the fund's return to its own benchmark, not to a risk-free asset. That makes it more relevant for mutual funds, because we're evaluating whether the manager added value over what the benchmark would have while Sharpe is useful, the Information Ratio gives a truer picture of a fund manager's active frame is very important. Looking at short-term data can mislead you due to market noise and volatility. On the other hand, a very long-term period like 10 years might not reflect the current fund strategy or manager, as those could have ideal period is between three to five years. This allows you to evaluate consistent performance while accounting for a reasonably stable strategy and risk observation. It's because of investment large-cap funds, 80% of the money must go to the top 100 stocks, leaving little room for creativity or deviation from the benchmark. That limits the potential to generate alpha or excess in multicap, smallcap, flexicap, or contra funds, fund managers can explore beyond the benchmark and use different strategies. That freedom leads to higher alpha, and therefore, a better Information should never rely on any one ratio in right approach is to combine all these and assess a fund from multiple angles—consistency, volatility, downside protection, and benchmark-beating don't need to calculate it yourself—it's already available in the fund fact sheets. You can simply compare the Information Ratio of a fund to the category instance, in the focused fund category, ICICI Prudential Focused Fund has an Information Ratio of 0.9, while the category average is 0.07—a clear indication of superior risk-adjusted the smallcap space, Invesco India Smallcap Fund has a ratio of 0.5, compared to a 0.1 category yes, the more positive the Information Ratio, the better. It means the fund manager is taking less risk for every unit of extra It's just one part of the the right fund starts with knowing your market cap allocation, then shortlisting funds that consistently beat benchmarks, and only then applying tools like the Information can't make a decision solely based on this metric. A fund might have a good Information Ratio today but not fit your overall strategy or allocation. So, use it as a filter, not the final Fact sheets are already loaded with data, but unless key metrics like the Information Ratio are better communicated and explained, investors won't more people understand and look at the Information Ratio, they can hold their advisors accountable and make more informed, risk-conscious yes, SEBI should definitely promote awareness and ensure standardized, visible reporting of such metrics.
Time of India
20-05-2025
- Business
- Time of India
Is beating the benchmark enough? What the information ratio reveals
In a world increasingly leaning towards passive investing, how can you truly evaluate the value an active fund manager brings to the table? In this exclusive conversation, ET's Neha Vashishth speaks with Chirag Muni, who breaks down the Information Ratio—a lesser-known but powerful metric that goes beyond just returns and looks at how efficiently those returns are generated. Excerpts: by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Roteirizador Pathfind - O planejador de rotas mais completo do mercado Sistema TMS embarcador Saiba Mais Undo Q. Let's start with the basics—what exactly is the Information Ratio? Chirag Muni: The Information Ratio (IR) is a performance metric that measures a fund manager's ability to generate excess returns over a benchmark, adjusted for the volatility of those excess returns. It shows how effectively a manager delivers better risk-adjusted returns compared to the benchmark. A higher IR indicates more consistent and efficient outperformance, while a lower IR suggests the fund is underperforming relative to its benchmark. Live Events Let me give you a comparison: Suppose two large-cap fund managers both deliver a 15% return, beating their 12% benchmark by 3%. Now, if one of them took less risk than the other to achieve this, the Information Ratio will reflect that. The fund manager with the higher Information Ratio would be the preferred choice because he delivered the same return with less risk. This ratio highlights both consistency and efficiency in return generation. Q. How do you see the IR reshaping the way investors assess fund managers, especially in an era of passive investing? Chirag: Great question. There are two aspects here. First, should investors choose active or passive fund management? When we analysed mutual fund performance over the past five years—across categories like large-cap, flexi-cap, multi-cap, contra, etc.—we found that 60% to 100% of active funds beat the Nifty, and around 70% beat their own benchmarks, except in the large-cap category. So yes, if you choose the right fund, active strategies still offer superior excess returns. Passive funds can't outperform the benchmark—they just mirror it. Secondly, within active strategies, the Information Ratio helps you evaluate the quality of excess return. It allows you to choose fund managers who are not only outperforming but doing so with less risk. That's where this metric really becomes relevant. Q. How is Information Ratio different from other ratios? Chirag: Most investors use the Sharpe Ratio, which compares a fund's return to a risk-free rate like a 6.5% government bond, adjusted for volatility. But the Information Ratio compares the fund's return to its own benchmark, not to a risk-free asset. That makes it more relevant for mutual funds, because we're evaluating whether the manager added value over what the benchmark would have given. So, while Sharpe is useful, the Information Ratio gives a truer picture of a fund manager's active performance. Q. What's the ideal time frame to evaluate the Information Ratio? Chirag: Time frame is very important. Looking at short-term data can mislead you due to market noise and volatility. On the other hand, a very long-term period like 10 years might not reflect the current fund strategy or manager, as those could have changed. The ideal period is between three to five years. This allows you to evaluate consistent performance while accounting for a reasonably stable strategy and risk profile. Q. I noticed that multicap and contra funds often show a higher Information Ratio compared to large-cap or mid-cap funds over 3–5 years. Why is that? Chirag: Good observation. It's because of investment flexibility. In large-cap funds, 80% of the money must go to the top 100 stocks, leaving little room for creativity or deviation from the benchmark. That limits the potential to generate alpha or excess return. But in multicap, smallcap, flexicap, or contra funds, fund managers can explore beyond the benchmark and use different strategies. That freedom leads to higher alpha, and therefore, a better Information Ratio. Q. How should investors use Information Ratio in conjunction with other metrics like Alpha, Beta, or Sharpe Ratio when selecting funds? Chirag: You should never rely on any one ratio in isolation. Information Ratio shows how efficiently a fund manager has beaten the benchmark considering the risk taken. Alpha tells you how much excess return the fund generated. Beta indicates how sensitive the fund is to market movements—i.e., how volatile it is compared to the benchmark. Sharpe Ratio assesses return per unit of total risk, compared to a risk-free asset. Sortino Ratio focuses only on downside risk. The right approach is to combine all these and assess a fund from multiple angles—consistency, volatility, downside protection, and benchmark-beating ability. Q. How can one interpret whether an Information Ratio is good or not? Chirag: You don't need to calculate it yourself—it's already available in the fund fact sheets. You can simply compare the Information Ratio of a fund to the category average. For instance, in the focused fund category, ICICI Prudential Focused Fund has an Information Ratio of 0.9, while the category average is 0.07—a clear indication of superior risk-adjusted performance. In the smallcap space, Invesco India Smallcap Fund has a ratio of 0.5, compared to a 0.1 category average. So yes, the more positive the Information Ratio, the better. It means the fund manager is taking less risk for every unit of extra return. Q. What are some limitations of the Information Ratio? Are there risks to over-relying on it? Chirag: Absolutely. It's just one part of the puzzle. Choosing the right fund starts with knowing your market cap allocation, then shortlisting funds that consistently beat benchmarks, and only then applying tools like the Information Ratio. You can't make a decision solely based on this metric. A fund might have a good Information Ratio today but not fit your overall strategy or allocation. So, use it as a filter, not the final decision-maker. Q. Lastly, SEBI is pushing for greater fund disclosures and transparency. Should the Information Ratio be highlighted more prominently in fact sheets? Chirag: Definitely. Fact sheets are already loaded with data, but unless key metrics like the Information Ratio are better communicated and explained, investors won't benefit. If more people understand and look at the Information Ratio, they can hold their advisors accountable and make more informed, risk-conscious decisions. So yes, SEBI should definitely promote awareness and ensure standardized, visible reporting of such metrics.
Forbes
09-05-2025
- Business
- Forbes
Your Brain On Risk: It's Not Good
MRI Brain Scan A college student once walked into my office, brimming with excitement. 'I want to invest in Bitcoin!' he declared. When I asked why, he said, 'My roommates are making so much money. They bought it last year and it has already doubled!" This type of enthusiasm is common, but troubling. One of the key distinctions between a novice and a seasoned investor is how they understand and respond to risk. This student was acting like a novice, in that the pursuit and thrill of easy money was overshadowing their ability to seriously consider risk. But what does it really mean to consider risk? Traditionally, investors use statistical tools to calculate risk, like standard deviation, volatility, beta, and downside deviation, to name a few. For instance, a stock with a historical return of 10% and a 20% standard deviation would be expected to return anywhere between -30% and +50% about 95% of the time. The higher the deviation, the more unpredictable the investment. Mature investors consider the standard deviation alongside the return potential of an investment and then aim to maximize their risk-adjusted returns. A simple way to do this would be to seek to build a portfolio that has the highest amount of return potential given the lowest amount of estimated risk. A common way to measure risk-adjusted returns is by using the Sharpe ratio. This ratio is expected return over expected risk and tells you how much return you're earning for every unit of risk you're taking. But is calculating risk-adjusted returns, and properly considering the risk of an investment before you buy something, the only important factor for a mature investor regarding risk? No. I've always believed there's more to risk than spreadsheets and ratios. Risk isn't just something we calculate, it's something we experience. It has the power to shape who we become. When I was 15, I bought my first stock and watched it rise. The rise in every stock I bought coincided with a rise in a very delicious feeling of euphoria. Scientists call this feeling dopamine. While dopamine is fun to experience, unfortunately, it is wildly addictive. The more shots of dopamine I was experiencing over time, the more my brain was being formed and transformed from a cautious teen into someone who actively sought out risk. My brain was being rewired. Neuroscientists have documented this. One study titled 'Dopamine Agonist Increases Risk Taking but Blunts Reward-Related Brain Activity' showed how dopamine alters the brain's reward system, pushing individuals toward greater risk-seeking behavior. In extreme cases, this pattern mirrors gambling addiction, which is widely regarded as one of the hardest addictions to overcome. Once risk becomes tied to identity, it's no longer about strategy; it's about chasing a feeling that changes our brain. This isn't just a theory. It's a pattern we see in culture today. Easy gains over the last decade have created a new breed of investor: one that starts with meme stocks, moves to crypto, and ends up speculating on NFTs, sports, or more and more exotic types of new entertainment. These are markets where risk isn't just high, it's often unknowable. And when risk becomes unknowable, you're not investing, you're gambling. My wife experienced the opposite end of the spectrum. She bought a townhouse in 2007, just before the crash. The financial loss left her extremely risk-averse, even after the markets recovered. Her brain, like mine, was shaped by her experience, but in a different direction. She experienced so much pain that her brain actively sought to eliminate risk and she became overly-risk avoidant, which is another type of problematic financial behavior. To truly evaluate risk, we must do two things: If an investment's risk can't be calculated (hello, crypto and NFTs), it's probably a poor fit, especially for business owners who value sustainability, not speculation. Whenever my students ask about investing in Bitcoin, I ask them, 'Will it change you?' Most assume wealth won't alter who they are. But research on lottery winners shows the opposite: fast money often leads to long-term dissatisfaction and compulsive behavior. Here are two simple tips to avoid being reshaped by risk: Long-term investors who bought and held diversified portfolios have quietly built wealth. Meanwhile, countless others who chased hot tips and quick wins are broke, both financially and emotionally. The Bible puts it plainly: In the end, I recommend the boring path, like my Nana, who bought a simple portfolio of high-quality stocks and forgot about it until retirement. That quiet, patient approach gave her what she needed, when she needed it, without putting her brain, or her life, at risk.
