Comparing Transition Track Records: An Attempt to Create Like-for-Like Comparisons

Abstract

This article discusses the issues one encounters when comparing transition track records. Different transition benchmarks, different (sub)asset class classifications, fair versus unfair, and differences in pretrade assumptions and client instructions affect transition composites/track records and make reliable comparison difficult. To remove the need to subdivide transitions and simultaneously address the problem of insufficient transition events, one can apply an independent sophisticated post-trade algorithm. Such an algorithm takes into account the differences in market volatility, liquidity, and price movements of each security during the transition. An algorithm basically normalizes the multiple variations of portfolio transitions so they can legitimately be compared against each other in a broader universe.