All rates are annualised. In general the portfolio has about half the performance of the MSCI World Index. This isn't surprising given the conservative nature of the portfolio. I estimate beta at 0.47 and alpha at -2.31%. The latter is not very good. The standard deviation of monthly returns is 5.91% for the MSCI for the months for which we have data on the portfolio and 3.3% for the portfolio. So it seems there is a bit over half the risk for less than half the average return and, therefore, a worse Sharpe ratio. So we have sacrificed return for a less than proportionate reduction in risk. Obviously, we could be doing worse than this too. I guess it depends on what your expectations are.
2 comments:
I would have thought that you should expect more than half the return if you halved the portfolio risk, given the 'risk free' rate of return (eg. capital guaranteed bank deposit) isn't zero.
What would have been the risk and return if the portfolio had been invested half in a MSCI World Index index fund and half in cash (fixed interest)?
This is something I should compute using a mix of USD and Sterling as the cash. The alpha and beta were computed using the USD risk free rate. Of course, that is close to zero now.
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