When the Dust Flies
Examining how volatility events and post-peak events, across a 68-year span, affect asset class performance.
Following the financial crisis, institutional investors began to place greater focus on investment objectives such as downside diversification, lower tail risk, and performance consistency. Institutional investors turned to hedge funds and other alternatives to incorporate more stable, diversifying return streams into their portfolios. But with unexpected shortcomings with their hedge fund investments, investors have become increasingly interested in more liquid, transparent strategies.
PGIM’s Institutional Advisory & Solutions introduce a new measure of performance sustainability, the Anchor Ratio1, which can help investors identify strategies and funds with more consistent and sustained performance, as well as other desirable performance characteristics.
1In the game of Cricket, the anchor is a top-order batsman capable of batting for a long duration throughout the innings. Despite playing defensively, the anchor is often the top scorer. In finance, we often use the “hit rate” to evaluate consistency of a manager’s skill, where the hit rate is defined as the ratio of the number of correct decisions as a percentage of total decisions. However, the missing concept is the notion of performance sustainability. How long can a manager hit without having a miss?
Source: PGIM IAS, eVestment. For illustrative purposes only.