Readings: Corn & Wheat, Sharpe Ratio, FIIs
- Bespoke: Bespoke’s Commodity Snapshot
- World Beta: Sharpe Ratios of Managers
Here is a good PowerPoint that shows some historical Sharpe Ratios for some very successful managers. (It is excerpted from the book Scenarios for Risk Management and Global Investment Strategies ). Ziemba’s point is that managers should not be penalized for upside volatility, only for their losses. So even though Berkshire did almost 25% a year over this time period, it has a lower Sharpe than the S&P500 that returned only 18%. (Great Ziemba PDF here.)
To gain a full understanding of a manager’s performance investors should use alternative metrics to evaluate managers, eg:
Sortino Ratio: uses the volatility of negative asset returns in the denominator (similar to Ziemba’s downside symmetric Sharpe Ratio)
Sterling Ratio: uses the average max drawdown in the denominator
MAR (or Calmar) Ratio: uses max drawdown in the denominator
Ulcer index: Measures the length and severity of drawdowns.
Between 18 March and 31 March, when the large purchases were made, the currency exchange rate hovered around Rs40 to a dollar. Few people expected the rupee to depreciate sharply then. In fact, for even much of April, the exchange rate was around 40 and FIIs took net long positions worth Rs3,834 crore in both the cash and futures segments. The sharp depreciation in the rupee since May, however, seemed to have caused a change in strategy. In May, they were net sellers of Rs9,296 crore in both segments.
Funds tracked by research firm EPFR Global have seen outflows in each of the Asia-Pacific markets in the week till 11 June. On the other hand, these funds saw strong inflows in the late March and early April. Last week’s outflows in Asia ex-Japan funds were the worst since January, while inflows in early April were at a 19-week high.
Very important to understand global money flows. Look for articles for record inflows into ‘emerging market’ funds ~ December 2007 / January 2008 - signs of a top.
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