Assessing portfolio performance

[bobsmydog]

Which index would be most appropraite to compare to a diversified portfolio?

[ADrunkenMarcus]

How diversified is this portfolio, Bobsmydog?

Is it an equity portfolio, diversified geographically and by sector? Is it a fixed income portfolio, diversified similarly? Is it a portfolio comprising equities, fixed interest - corporate bonds, gilts - and additional asset classes?

Best wishes

Mark.

[bobsmydog]

How diversified is this portfolio, Bobsmydog?

Is it an equity portfolio, diversified geographically and by sector? Is it a fixed income portfolio, diversified similarly? Is it a portfolio comprising equities, fixed interest - corporate bonds, gilts - and additional asset classes?

Best wishes

Mark.

Hi Mark, it is at present

Equities 61%, (equities diversified geographically but a bit high on the UK for my liking at the moment!)
Fixed income (all high yield) 25%
Commercial property 4%
Cash 10%
Commodities 0%

[ADrunkenMarcus]

Hi Bobsmydog

It's difficult, isn't it?

You could create your own benchmark, if you intend to maintain these weightings? You would need to take an equity index, a fixed income index, commercial property index and then cash return index in proportion to your holdings. So you could start by creating your benchmark at a chosen value (say 100) comprising 61% of it as the return from your chosen equity index, and so on. Then when you examine your equity index a year later and see it's grown by 10% (for example), you would multiply 61 by 1.1 and then repeat the process for all your other components.

One option is to collect data from a number of benchmarks - perhaps all of the above - and then compare with your portfolio's overall performance to get a general idea how it is doing compared to what you'd have achieved if you'd put the same into trackers. Personally, I have an equity only portfolio and therefore monitor:

each holding verses its index (i.e. a FTSE 100 share is benchmarked against the FTSE 100);
my portfolio's total return verses the total return FTSE All Share, FTSE 100, FTSE 250 and FTSE All World ($) indexes, and the RPI inflation index;
my portfolio's dividend growth in dividend paid per income unit, compared to the approximate dividend growth of the capital only versions of the indexes (worked out by examining their historic dividend yield over the preceding year).

I assume you'll be monitoring your total return performance with unitisation and accumulation units?

Best wishes


Mark.

[bobsmydog]

Thanks, Mark.

No these weightings won't be fixed so I will periodically take total return for each sector and compare it to each sector index, that should give me some idea.

I'd read somewhere that in UK many use FTSE all share and in US the S&P 500. I suppose if I'm doing worse than the all share, it's time to shift everything into a few trackers and spend more time doing nothing! This is the way I may be heading anyway