Abstract
This article describes a derivative portfolio metric that grades individual sub-funds' contribution to the Sharpe ratio of a fund of funds portfolio. The metric is a scaling of the amount by which an additional 1% portfolio NAV allocation to an individual sub-fund changes the portfolio's Sharpe ratio. The usefulness of this metric is that it provides a scoring system for portfolio sub-funds. The score rates, comprehensively, a given sub-fund's risk-adjusted performance as well as its allocation size in the portfolio. This metric generates scores which allow the fund of funds portfolio manager to rank sub-funds relative to each other for their risk-adjusted returns and allocation size in the portfolio.
TOPICS: Derivatives, portfolio construction, quantitative methods
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