Date post: | 04-Jan-2016 |
Category: |
Documents |
Upload: | lorraine-patterson |
View: | 217 times |
Download: | 2 times |
Getting started using Ibbotson software:
An unofficial tutorial
MGT 544
Stanley Martinez, TA
01.19.01
Sequencing:
1. Encorr Analyzer
2. Inputs generator
3. Encorr Optimizer
Encorr Attribution (not covered today)
(Note: Encorr Allocator is a new feature to ver. 8.0)
1. Encorr Analyzer (Start here)
File>New Folder Select series
Options include:
1. Raw Data
2. Derived Data
3. Case Files
Raw Data> Ibbotson Database> Stocks, Bonds, Bills and Inflation
Left click on a series to add it to selected series on the right
Select each of the following
1. S&P 500 TR (Domestic large cap equities)
2. US Small Stk TR (Domestic small cap equities)
3. US IT Gvt TR (Domestic intermediate –3-10 year– Treasury notes)
4. US 1 Yr. Gvt TR (A cash surrogate w/ higher E(r))
1. Encorr Analyzer
Other useful features
A. Query: Helps you quickly look up a series
1. Select the entire Ibbotson Database folder
2. Type “Farm” to right of “Series Name” in the Time Series Query dialogue box
3. Click Search
At left will appear three data series containing returns for Farm Real Estate.
4. Select and Add Farm RE TR
(Repeat this process searching for “EAFE” under the “World Capital Markets-- Equity” folder. Select and Add “MSCI EAFE TR”)
1. Encorr Analyzer
Other useful features
2. Transform: Helps you convert
A. Series from real to nominal
B. From foreign currency to $US or another currency
(Neither are necessary now, but these may play a role in “Going Global” due Feb 9)
1. Encorr Analyzer
You should now have six data series.
Hit OK>Date Settings
Select Common Date Settings: This truncates the set to 1970-96 Annual
a file containing annual total returns for all six assets classes
Save as: create a folder and save it somewhere i.e., “Tutorial.fld”
You now have a series that can be used for generating optimization inputs
>Create Inputs
2. Inputs Generators
Expected Return Computation Method: Select “Arithmetic Mean”
Expected Return: Use this to adust from historical inputs
Ibbotson: Building blocks approach using bootstrapping method
1. Select “International Component” for MSCI-EAFE TR
2. Select “Building Block Equity” for “US Small Stock TR”
3. Select “Inputs Summary” folder:
shows E(r), σ, ρ for each asset
shows covariance matrix between each asset
4. Click on an icon that looks like this
to create an Optimization file
3. Encorr Optimizer
From “Available Assets” add the following assets to “Selected Assets”
S&P 500 TR
U.S. Small Stk TR
U.S. IT Govt TR
U.S. 1 Yr TR
MSCI EAFE TR
From “Available Assets” add the following asset to “Liabilities”
Farm R.E. TR
3. Encorr Optimizer
Add Constraints from “Constraints” folder
Minimum 10% US Int. Gov
Maximum 25% each to EAFE and Small Stocks
These are typical risk constraints impose by plan sponsors or endowment funds
“Cost to Increase” and “Cost to Decrease = 0
Standard Deviation (Risk)
Expected Surplus
0.0 24.02.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 22.0
7.0
17.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
S&P 500 TR
U.S. Small Stk TR
U.S. IT Gvt TR
U.S. 1 Yr Gvt TR
MSCI EAFE TR
3. Encorr Optimizer
Report features
A. Efficient frontier: see right
Plots portfolio assets relative to liabilities in mean-variance space
B. Portfolio mix given 13.28% expected annual standard deviation: see right
By dragging on the standard deviation scale on the X axis, we can change the optimal portfolio mix for a given level of risk
Position 50
U.S. Small Stk TR (38.7%)
U.S. IT Gvt TR (33.3%)
MSCI EAFE TR (28.0%)
3. Encorr Optimizer
Report features
C. Wealth percentiles (Trumpets)
Given the stated portfolio mix and a lognormal return distribution, what is the portfolio’s return distribution over time?
D. Return percentiles (Tulips)
What is the distribution of the portfolio’s expected return through time given the policy mix?
Time
Wealth (USD)Position 50
Wealth Percentiles
Jan2001
Jan2021
Dec2005
Dec2010
Dec2015
1
30
1
10
95th Percentile Expected Value 5th Percentile
Time
Compound Annual ReturnPosition 50
Return Percentiles
Jan2002
Jan2021
Dec2005
Dec2010
Dec2015
-10.0%
40.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
95th Percentile Expected Value 5th Percentile
3. Encorr Optimizer
Report features
E. Frontier area:
How do changes in the efficient portfolio weights change with a portfolio’s target standard deviation of returns?
There are many more tools. These are just a few to get you started.
Position
WeightsUntitled
Frontier Area Graph
0.0%
100.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
0 10 20 30 40 50 60 70 80 90 100
S&P 500 TR U.S. Small Stk TR U.S. IT Gvt TR U.S. 1 Yr Gvt TR MSCI EAFE TR