Over the past several years the popularity of target date funds for use in retirement plans has exploded. Their attractiveness is obvious: faced with an overwhelming number of investment options in a self-directed 401(k) plan, an unsophisticated investor can instead direct all of his or her contributions to a single, well-diversified mutual fund. While target date, lifestyle, or glide path funds have made investing easy for the plan participant, the irony is their introduction has made life harder, in some ways, for the fiduciaries whose job it is to analyze such investments. This study seeks to shed some light on the situation and propose thoughtful, meaningful ways of analyzing such balanced funds. We will argue that Bill Sharpe’s returns-based style analysis methodology is ideally suited for analyzing target date funds.
Research Articles
Below is a list of different research articles and newsletters pertaining to style analysis and asset allocation with details about what they comprise. To view these articles simply click on the link for the desired article and in the dialog that pops up either open or save to disk. The format of the documents are PDF files which open with Adobe Acrobat.
Article
Target Date Funds by Marc Odo, CFA, CAIA, CFP
Mon, 2010-04-05
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The Omega Statistic Explained by Thomas Becker, Ph.D.
Mon, 2010-04-05
The Omega measure was introduced in 2002 by C. Keating and B. Sedgewick ([1]) as a universal performance measure. This article explains the use, the meaning, and the exact mathematical definition of the Omega.
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The Black-Litterman Model
Tue, 2009-04-21
An Introduction for the Practitioner. This article explains the benefits of using the Black-Litterman model (BLM) in conjunction with the time-honored mean variance optimization (MVO). BLM provides a front end to the MVO method that addresses the two main issues practitioners have with it.
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The Style Drift Score: A Quantitative Measure
Tue, 2004-02-17
This paper introduces a quantitative measure of style drift – the Style Drift Score. The
Style Drift Score measures the variability of a portfolio’s effective asset mix as determined by returns-based style analysis around the portfolio’s average effective asset mix. The Style Drift Score frees one from having to examine countless rolling window asset allocation graphs and rolling window style maps by quantifying the style drift of a portfolio in a single statistic. It is ideal for screening thousands of portfolios, comparing the style consistency of portfolios, and monitoring the drift in a portfolio’s style. |
The Mathematics of Returns-Based Style Analysis (Part 2)
Tue, 2003-03-25
One of the most frequently asked questions concerning the mathematics of StyleADVISOR is how exactly we calculate the style attribution coefficients which are displayed in the style map view, the asset allocation view, and the style table. The short answer to this question is very easy: We perform the returns-based style analysis that was invented by Stanford professor and Nobel laureate William F. Sharpe. In this article, I will explain the mathematics of Sharpe's algorithm. As it turns out, a fairly complete and mathematically rigorous description of the algorithm can be given without using a lot of mathematical formalism.
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Style Analysis: A Ten-Year Retrospective and Commentary by R. Stephen Hardy
Tue, 2003-01-07
Style analysis, often referred to as returns-based style analysis (hereafter called RBSA), was developed and first introduced by William Sharpe in his landmark article, “Determining a Fund’s Effective Asset Mix.”1 In 1992, RBSA was made commercially available with the release of StyleADVISOR, a Windows-based software program designed to implement Sharpe’s style analysis. For much of its early history, RBSA was used by a small number of pension plan sponsors and institutional money managers. Today, thousands of investment professionals use RBSA through numerous software programs.
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Optimizing Portfolio Allocations Using Excess Returns
Thu, 2002-08-08
We recently completed an analysis of a large defined contribution program. The plan sponsor wanted to use StyleADVISOR to make changes in the structure. The results may be helpful to you whether you are a plan sponsor, consultant or money manager.
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The Mathematics of Returns-Based Style Analysis (Part 1)
Thu, 2002-08-08
One of the most frequently asked questions concerning the mathematics of StyleADVISOR is how exactly we calculate the style attribution coefficients which are displayed in the style map view, the asset allocation view, and the style table. The short answer to this question is very easy: We perform the returns-based style analysis that was invented by Stanford professor and Nobel laureate William F. Sharpe. In this article, I will explain the mathematics of Sharpe's algorithm. As it turns out, a fairly complete and mathematically rigorous description of the algorithm can be given without using a lot of mathematical formalism.
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In Search of the Ultimate Equity Portfolio
Wed, 2002-03-27
The goal of this project is to illustrate a technique that can be used by StyleADVISOR/AllocationADVISOR users for going through a large database of managers to create superior performing portfolios. This process starts by putting all managers onto a level playing field and finishes by allocating among the finalists to create the “most efficient” portfolios from those determined to be “most skillful.” By using the power of the computer the user is able to quickly search through a database of thousands of managers and discover many that would otherwise have been overlooked using more traditional due diligence research techniques.
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Master of the Universes
Wed, 2002-01-30
As many people know, StyleADVISOR is not only a style analysis program; it is also a performance analysis program. This includes the ability for the user to easily create their own custom “peer groups” or “universes” of any size for performance comparisons. This document covers this process step-by-step and also some of the most commonly asked questions about this topic. After reading this, you will be on your way to becoming the “Master of the Universes.”
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Style Analysis Tutorial
Wed, 2001-12-12
StyleADVISOR is used at a number of universities (Stanford, Wharton, London Business School, Northwestern, etc.). This nineteen page report is a tutorial on style analysis written by Professor Ravi Jagannathan from the Kellogg Graduate School of Business, Northwestern University. This is an excellent primer on style analysis.
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Daily Energy Sector Analysis
Tue, 2001-10-02
Originally presented at our 2001 User's Conference this article looks at how daily data can show shifts in mutual fund holdings over a short time period. On July 13, 2001 the Wall Street Journal reported that a handful of mutual funds had recently increased their exposure to energy stocks. For each fund they gave the percentage of energy exposure on a specific date. We thought that this would be a good test for daily style analysis.
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Daily Style Monitoring
Tue, 2001-10-02
Also presented at our 2001 User's Conference this article looks at how daily data can be used for style and sector monitoring of any manager where daily returns are available.
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Daily vs. Monthly Analysis
Tue, 2001-10-02
Also presented at our 2001 User's Conference this article looks at the differences in detecting style shifts using daily versus monthly data using a few different Fidelity funds and the Prudential sector indexes as indices.
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The Dangers of Misusing Returns-Based Style Analysis
Wed, 2001-01-03
Gerald W. Buetow and Hal Ratner in their recent article, "The Dangers in Using Returns-Based Style Analysis in Asset Allocation," have amply demonstrated the dangers of blaming a poorly understood and poorly used tool. We will analyze the six funds that Buetow and Ratner did, show where they went wrong in their analyses, and demonstrate that returns based style analysis, when done properly, provides accurate results. First we will list B&R's conclusions, then show why, with proper analysis, their conclusions are wrong.
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Newsletter
The Advisor Volume 37: Black-Litterman and Home Prices in StyleADVISOR
Tue, 2005-03-01
Black-Litterman: Asset allocations you can actually use!
Have you given up on mean variance optimization because the resulting asset allocations are unintuitive and anything but diversified? The sophisticated Black-Litterman asset allocation model helps you realize the benefits of mean variance optimization by creating portfolios that you can use. How does the Black-Litterman Model Calculate Return Forecasts? The Black-Litterman model uses two sophisticated mathematical techniques to create forecasts for mean variance optimization: reverse optimization and Bayesian probability theory. This article is a "user-friendly" explanation of these techniques. Home Prices in StyleADVISOR You can't pick up a newspaper today without reading about the boom in single family home prices. Home owners will soon be able to hedge their real estate exposure when the Chicago Mercantile Exchange begins trading derivatives on home prices. Now you can analyze home prices in StyleADVISOR with our new home price database |
The Advisor Volume 35: Zephyr Universes
Wed, 2003-10-01
Because of our superior methodology, investment professionals are using Zephyr Universes for peer group analysis. This newsletter discusses the Zephyr Universes in detail, including our new domestic fixed income universes, our methodology for the domestic equity universes, how to create your own universes and much more. Also, a further exploration into Monte Carlo simulation, Dr. Becker's Math Corner, information about online training and much more.
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Zephyr PowerPresenter
Thu, 2002-08-01
You create a PowerPoint presentation easily and directly from StyleADVISOR. This capability is one of many features we are adding to StyleADVISOR to help you work more efficiently. Check out just how easy it can be.
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The Advisor Volume 31: StyleADVISOR Enhancements
Thu, 2001-03-01
Included in this newsletter are the enhancements made to the latest version of StyleADVISOR including an explanation of the all new custom axis graph and we take a look at the new macro recording tool for changing parameters such as symbols throughout a workbook. Also included is an analysis of detecting a manager's sector changes using daily data and the all new Zephyr WebANALYTICS.
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The Advisor Volume 30: Daily Data for StyleADVISOR
Tue, 2000-08-01
This newsletter features an analysis of using daily data in StyleADVISOR, specifically analyzing style drift and sector analysis.
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StyleADVISOR Model Selection
Sat, 2000-01-01
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