a - Single Fund Analysis Score as a RAPM

8/7/2019 a - Single Fund Analysis Score as a RAPM

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By Peter Urbani, CIO, Infiniti Capital

Performance of the Infiniti CapitalSingle Fund Analysis Score (SFA)as a Risk Adjusted Performance

Measure ( RAPM)

http://www.infiniti-analytics.com/





The Infiniti SFA Total Score as a RAPMThis presentation shows the realised performance of 4 portfolios built from a commondata set each using a different Risk Adjusted Performance Measure (RAPM) as theobjective function to be maximised.

Performance is shown on an out-of-sample (ex post) basis and the data set used was acommon sample universe of 36 anonymised hedge funds and the portfolios wererebalanced on a quarterly basis.

The RAPM’s used were the Sharpe, Sortino & Omega ratios and the Infiniti SFA TotalScore.

The SFA Total score produces superior risk adjusted returns (CAGR/ABS(Drawdown)) forthe following reasons:

It imposes a positively skewed distribution on the data during the in-sample optimisation and this shape is stableenough to persist out-of sample (predictive)

The Sharpe ratio does not differentiate between upside and downside risk

The Sortino ratio can too easily generate zero downside portfolios in the in-sample period but these do not persist aswell out of sample (over-fitting)

The Omega ratio has the advantage of being distribution independent but still has the downside area of the distribution

as its denominator, therefore it does not explicitly try to truncate the left tail as the SFA Score does.






80

90

100

110

120

130

140

150

160

170

180

SFA Total CAGR : 15.1%

Omega CAGR : 12.9%

Sharpe CAGR : 11.4%

Sortino CAGR : 10.1%

Equally Weighted Fund CAGR : 10.4%

Out-of-Sample Returns

Note: All returns shown are Gross of any fees






Table of Statistics






Out-of-Sample Returns 2008

-4.00%

-2.00%

0.00%

2.00%

4.00%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct N

SFA Total

-4.00%

-2.00%

0.00%

2.00%

4.00%


Omega

-4.00%

-2.00%

0.00%

2.00%

4.00%


Sharpe

-4.00%

-2.00%

0.00%

2.00%

4.00%6.00%


Sortino

+4.98%

+2.58%

-0.86%

+4.40%






Weights through time (Quarterly)

The Charts to the Left

show the weights

through time of each of portfolios (SFA Total,

Omega, Sharpe,

Sortino ) with quarterly

rebalancing of the

common universe of 36

funds0%

10%

20%

30%

40%

50%

60%70%

80%

90%

100%

1-Jan

-06

1-Apr

-06

1-Jul

-06

1-Oct

-06

1-Jan

-07

1-Apr

-07

1-Jul

-07

1-Oct

-07

1-Jan

-08

1-Apr

-08

1-Jul

-08

1-Oct

-08

1-Jan

-09

1-Apr

-09

Example Fund 50

Example Fund 17

Example Fund 7

Example Fund 30

Example Fund 10

Example Fund 9

Example Fund 5

Example Fund 19

Example Fund 49

Example Fund 39

0%

10%

20%

30%

40%

50%

60%70%

80%

90%

100%

1-Jan

-06

1-Apr

-06

1-Jul

-06

1-Oct

-06

1-Jan

-07

1-Apr

-07

1-Jul

-07

1-Oct

-07

1-Jan

-08

1-Apr

-08

1-Jul

-08

1-Oct

-08

1-Jan

-09

1-Apr

-09

Example Fund 50

Example Fund 17

Example Fund 7

Example Fund 30

Example Fund 10

Example Fund 9

Example Fund 5

Example Fund 19

Example Fund 49

Example Fund 39

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1-Jan

-06

1-Apr

-06

1-Jul-06

1-Oct

-06

1-Jan

-07

1-Apr

-07

1-Jul-07

1-Oct

-07

1-Jan

-08

1-Apr

-08

1-Jul-08

1-Oct

-08

1-Jan

-09

1-Apr

-09

Example Fund 50

Example Fund 17

Example Fund 7

Example Fund 30

Example Fund 10

Example Fund 9

Example Fund 5

Example Fund 19

Example Fund 49

Example Fund 39

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1-Jan

-06

1-Apr

-06

1-Jul-06

1-Oct

-06

1-Jan

-07

1-Apr

-07

1-Jul-07

1-Oct

-07

1-Jan

-08

1-Apr

-08

1-Jul-08

1-Oct

-08

1-Jan

-09

1-Apr

-09

Example Fund 50

Example Fund 17

Example Fund 7

Example Fund 30

Example Fund 10

Example Fund 9

Example Fund 5

Example Fund 19

Example Fund 49

Example Fund 39

SFA Total Omega

Sharpe Sortino




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Realised Best-Fit Value at Risk 95%

12 Month rolling Best-Fit Infiniti VaR

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

Dec-06

Jan-07

Feb-07

Mar

-07

Apr-07

May

-07Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar

-08

Apr-08

May

-08Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

SFA Total ( Avg -1.2%)

Omega ( Avg -0.8%)

Sharpe ( Avg -0.7%)

Sortino ( Avg -1.5%)

Equally Weighted Fund ( Avg -1.7%)





0.00

0.01

0.01

0.02

0.02

0.03

0.03

0.04

0.04

-10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

SFA Total (Gumbel (Max) )

Omega (Johnson (Lognormal) )

Sharpe (Mixture of Normals )

Sortino (Modified Normal )

Portfolio Best-Fit Distributions





Best-Fit DistributionsThe Charts to the Left

show the best-fitting

distribution for each of

the portfolios builtusing the SFA Total

Score, Sharpe, Sortino

or Omega ratio’s. Also

shown in grey is the

best fitting distribution

of the Equally

Weighted (Benchmark)

portfolio.

As you can see the

SFA portfolio had the

most positive

skewness and good tailprotection.

0.00

0.01

0.01

0.02

0.02

0.03

0.03

0.04

0.04

-0.15 -0.1 -0.05 0 0.05 0.1 0.15 0.2

Portfolio Best Fit

Distribution ( SFA Total

Benchmark Best Fit

Distribution

0.00

0.01

0.01

0.02

0.02

0.03

0.03

0.04

0.04

-0.2 -0.1 0 0.1 0.2

Portfolio Best Fit

Distribution ( Omega )

Benchmark Best FitDistribution

0.00

0.01

0.01

0.02

0.02

0.03

0.03

0.04

0.04

-0.2 -0.1 0 0.1 0.2

Portfolio Best Fit

Distribution ( Sharpe

Benchmark Best Fit

Distribution

0.00

0.01

0.01

0.02

0.02

0.03

0.03

0.04

0.04

-0.2 -0.1 0 0.1 0.2

Portfolio Best Fit

Distribution ( Sortino

Benchmark Best Fit

Distribution






Piecewise Non-Linear RegressionThe Charts to the Left

show the piecewise

regressions of each of

the out-of-sampleportfolios constructed

using either the SFA

Total Score, Sharpe,

Sortino or Omega

ratio’s against an

Equally Weighted

(Benchmark) portfolio.

As you can see the

SFA portfolio had the

best upside capture to

downside capture.

-0.04

-0.02

0.00

0.02

0.04

0.06

-0.05 -0.04 -0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05

SFA Total versus Equally Weighted Fund

-0.04

-0.02

0.00

0.02

0.04

0.06

-0.05 -0.04 -0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05

Omega versus Equally Weighted Fund

-0.04

-0.02

0.00

0.02

0.04

0.06

-0.05 -0.04 -0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05

Sharpe versus Equally Weighted Fund

-0.04

-0.02

0.00

0.02

0.04

0.06

-0.05 -0.04 -0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05

Sortino versus Equally Weighted Fund






-0.04

-0.02

0

0.02

0.04

0.06

0.08

-0.05 -0.04 -0.03 -0.02 -0.01 0 0.01 0.02 0.03 0.04 0.05

SFA Total

-0.04

-0.02

0

0.02

0.04

0.06

0.08

-0.05 -0.04 -0.03 -0.02 -0.01 0 0.01 0.02 0.03 0.04 0.05

Omega

-0.04

-0.02

0

0.02

0.04

0.06

0.08

-0.05 -0.04 -0.03 -0.02 -0.01 0 0.01 0.02 0.03 0.04 0.05

Sharpe

-0.04

-0.02

0

0.02

0.04

0.06

0.08

-0.05 -0.04 -0.03 -0.02 -0.01 0 0.01 0.02 0.03 0.04 0.05

Sortino

Bi-Variate Best Fit CopulaThe Charts to the Left

depict the best-fit bi-

variate Copula of each

of the out-of-sampleportfolios constructed

using either the SFA

Total Score, Sharpe,

Sortino or Omega

ratio’s as the objective

function or risk

adjusted performance

measure (RAPM) to

maximize. Shown here

against the common

benchmark.

As you can see theSFA portfolio had the

best zone 2 (upside) to

zone 4 ( downside )

dependence.

Zone 4

Zone 2





Conclusions

The SFA Total score produces superior risk adjusted returns (CAGR/ABS(Drawdown)) forthe following reasons:

It imposes a positively skewed distribution on the data during the in-sample optimisation and this shape is stableenough to persist out-of sample (predictive)

The Sharpe ratio does not differentiate between upside and downside risk

The Sortino ratio can too easily generate zero downside portfolios in the in-sample period but these do not persist as

well out of sample (over-fitting)

The Omega ratio has the advantage of being distribution independent but still has the downside area of the distribution

as its denominator, therefore does not explicitly try to truncate the left tail as the SFA Score does.

For further information or to download a free trial of the Infiniti Analytics Suite

which was used to generate these results please go to:

www.infiniti-analytics.com

i l i







DisclaimerThe information and opinions in this presentation were prepared by the Infiniti Group (collectively “Infiniti”). This presentation is provided for informationpurposes only. It is not an offer or solicitation to enter into any agreement or contract with Infiniti. Whilst all reasonable care has been taken to ensure thatthe facts stated herein are accurate and that the opinions and expectations contained herein are fair and reasonable, Infiniti makes no representation orwarranty, express or implied, with respect to the fairness, correctness, accuracy reasonableness or completeness of the information and opinions herein buthas obtained the information from sources believed to be reliable.

Analyses contained herein are based on assumptions that if altered can change the conclusions reached herein. Infiniti has no obligation to update, modifyor amend this publication or to otherwise notify a reader in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forthherein, changes or subsequently becomes inaccurate. The information is not intended to depict or predict actual investment performance of any financialproduct and is subject to change without notice. Any opinions expressed herein reflect Infiniti’s judgment at the date and time hereof and are subject tochange without notice.

Infiniti is not acting and does not purport to act in any way as your advisor. We therefore strongly suggest that you seek your own independent advice inrelation to any legal, tax, accounting and regulatory issues relating to the merits or otherwise of the products and services discussed. Financial instrumentsthat may be discussed herein may not be suitable for all investors and any investors must make any investment decision using their own independentadvisors as they believe necessary and based upon their specific financial situation and investment objectives.

If a financial instrument is denominated in a currency other than an investor’s currency, a change in exchange rates may adversely affect the price or valueof, or the income derived from, the financial instrument, and any investor in that financial instrument effectively assumes currency risk. Prices and

availability of any financial instruments described in this presentation are subject to change without notice. Nothing contained herein shall constitute anyrepresentation or warranty as to future performance of any financial instrument, credit, currency, rate or other market or economic measure as pastperformance is not necessarily indicative of future results.

The information contained herein is CONFIDENTIAL. It is intended only for the use of the person to whom this document is given and may not be reproducedor redistributed in whole or in part without the prior written consent of Infiniti.

This does not constitute an offer to sell, or the solicitation of an offer to buy, any product. An offer may only be made by means of the offeringmemorandum and governing documents of the relevant funds (the “Fund Documents”), which should be read in their entirety. The information is notintended to be complete or final and is qualified in its entirety by the Fund Documents. In the event the Information is inconsistent or contrary to thedescriptions or terms of the Fund Documents, the terms of the Fund Documents shall prevail. Infiniti (i) may be a market maker or specialist in securitiesissued by companies mentioned herein (ii) may act as an adviser, underwriter or lender to companies mentioned herein (iii) may have received or intend toseek compensation for investment services from companies mentioned herein (iv) along with its respective officers, directors and employees may affecttransactions and/or hold long or short positions in the underlying securities or related financial products of companies mentioned herein.

The information contained herein is intended for illustrative purposes only, has been developed internally and has been based on variations of existingfunds, managed accounts, simulations, extrapolations of other investment programs, pro forma data or taken from trade and statistical services and othersources that we deem reliable, although no warranty is made that the information is accurate or complete and it should not be relied upon as such.

Any securities discussed herein may not be suitable for all investors. Transactions of the type described herein may involve a high degree of risk, and thevalue of such instruments may be highly volatile.

Past performance is not guarantee of, and cannot be construed as an indication of, future results.



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