How to Rate Management of Investment Funds

This chapter describes a simple graphical method for capturing the essence of what is permanent and distinctive about the performance of a fund, including the effects of fund management. It also introduces a concept of fund performance and a measure for rating fund-management performance. The characteristic line contains information about both expected rate of return and risk. The slope of the line measures volatility. Thus, a steep slope means that the actual rate of return for the fund in question is relatively sensitive to fluctuations in the general stock market. A gentle slope indicates that the fund in question is relatively insensitive to market fluctuations. A volatility of two means that a one-percent…