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Hurdle Rate - How Do You Measure Investment Performance?

Autor:   •  September 13, 2011  •  Case Study  •  332 Words (2 Pages)  •  1,113 Views

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The benchmark used to make the assessment is S&P 500 Index. In the S&P 500, there are 500 large publicly held companies which trend on the two largest stock exchanges. This index is the most professionally benchmark to indicate position and condition of American economy. The Value Trust's return made the longest streak of success in the S&P 500 index history, for 14 years consecutively. An investor in Value Trust said: “it has an average annual total return of 14.6%, which surpassed the S&P500 by 3.67% per year.”(Case Study in Finance,p23)

How do you measure investment performance?

Answer: After selected a benchmark, what investors should do is to compare the investment performance against it. If you have achieved outperformance against the benchmark, your investment management is superior to that invested in the index itself. For the purpose of investment performance measurement, total return is more adequate than the rate of change in price alone. Further, it is important to consider the total return generated by a portfolio relative to its risk. What’s more, if we measure the investment portfolio’s performance, it is not enough to evaluate the return, also need to compare it with the whole market. If your stock rises 6% but the market rises more than 6%, your investment is underperformed in the year.

What does good performance mean to you?

Answer: As an investment manager, success does not just mean an increase in the price of the portfolio that you have, also means you can gain more return and benefits per unit of risk.

b) What might explain the fund’s performance?

There were two most frequently used measures of performance, one was the percentage of annual growth rate of NAV assuming reinvestment and the other was the absolute dollar value today of an investment made at some


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