Opalesque Emanagers Index Easily Replicable With Relatively Low Tracking Error
One of the recommendations of The Association
for Investment Management and Research
(AIMR), now part of the CFA Institute, with
respect to its guidelines for benchmarks is that
they be replicable.
With this in mind, we this month attempt
to recreate the Emanagers index using the
Opalesque Emerging Managers database. The
Index is equally weighted with notional new
money pro-rated to new funds as they enter the index.
Based on the available underlying data and bearing in mind that the
index is retroactively updated each month, we were able to recreate
the index returns with a tracking error of 3.33% or -33 basis points per
annum to the actual index compound annual return (CAGR) of +16.55%.
We then performed a four moment risk and return attribution analysis,
which incorporates the effects of the higher order moments ( skewness
and Kurtosis ) via the calculation of co-skewness and co-kurtosis
matrices, on the ex post performance of the Index portfolio.
Extrapolating the cone of uncertainty into the future based on the
underlying statistics of this calculation suggests an expected return of
+9.96% over the next 12 months.
Two caveats here are obviously that this is based entirely on past
performance and ......................
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This article was published in Opalesque's New Managers
a top-down monthly analysis, news and research publication on the global emerging manager space.