Overview
Luck is often mistaken as skill. When screening securities to evaluate and include in a manager’s portfolio, their belief system typically forms their investment approach. As a result, such structural biases are rewarded and penalized by the market depending on where the market cycle is. Because of this, there are instances that a manager’s structural bias could result in outperformance. However, understanding if the manager truly exhibited stock selection skill is crucial, especially when identifying great stock selection managers. In cases where factor rotation is necessary, understanding the manager’s factor skill becomes more important than their selection skill.
The Skill Analysis module allows users to differentiate manager performance attributable to factor exposures favored by the manager’s investment process (or style) from skill. The module allows for cross-sectional analysis among managers with similar factor exposures and decomposes skill into factor rotation vs. stock selection skill. In so doing, investors can make well informed decisions regarding manager selection and allocations.
How it works
START A SKILL ANALYSIS
Skill Analysis offers you the ability to further slice and dice managers by using Aapryl’s Skill Score.
SELECT A MANAGER PRODUCT
Select a single or multiple Products to compare.
ANALYZE SKILL ANALYSIS
View multiple charts and tables, which provide historical measurements of a Products Skill, and other attributes.
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Purpose: Aapryl’s Skill Analysis module allows user to analyze a manager’s track record to determine how much was derived from skill. The module uses the proprietary analytics generated by the Skill Screening Engine to provide users with measures of skill, consistency and style that will provide unique insight into a particular manager.
Glossary of Terms:
- Static Clone Portfolio: A portfolio derived by determining a manager’s long-term average exposure to various style factors over the life of a manager’s track record.
- Dynamic Clone Portfolio: A portfolio derived by determining a manager’s 36 month rolling average exposure to various style factors over the life of a manager’s track record.
- Factor Timing: The portion of a manager’s return derived by changing exposure to market factors or style. It is calculated by taking the difference between the Dynamic Clone Portfolio and the Static Clone portfolio.
- Stock Selection: The portion of a manager’s return derived by selecting stocks. It is calculated by subtracting out the return from the Static Clone Portfolio (style return) and the Factor Timing return from a manager’s return.
- Consistency Measure: Similar to the commonly used Batting Average Statistic; it measures the consistency of the over and under performance of a manager’s stock selection and factor timing returns.
- Edge: Proprietary statistic that measures the magnitude of a manager’s stock selection and factor timing returns.
- Opportunity Score: The measure of the active decisions being made by the manager relative to a passive portfolio. (Active Share, Concentration, Style turnover, etc).
Description of Methodology: AAPRYL’s Skill Analysis Module provides users with analytics that are calculated in AAPRYL’s Skill Engine.Please see the description of AAPRYL’s Skill Engine for details.
Information Provided: AAPRYL is able to use this information to provide users with charts and graphs that contain an abundance of useful information which includes the following:
- Skill Score- Users can see charts that show AAPRYL’s measure of total manager skill as well as a manager’s stock selection, Edge, Factor Timing and Opportunity Score.
- Performance Attribution- Users can see the breakout of the factors that drive a manager’s performance.
- Factor Exposure- Users can see the exposure to the factors that comprise a manager’s static clone portfolio by various criteria including AAPRYL’s proprietary Predicted Style.
- Manager Selection Statistics- Users can see various statistics that are commonly used in evaluating managers including Excess Return, Information Ratio, R Squared and Standard Deviation.
- Actual and Clone Returns- Users can see both a manager’s actual and clone portfolio returns.
Additional Information
For more information on the methodology behind Aapryl’s Skill Analysis, please review the following material(s):
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