Major Asset Classes October 2021 Risk Profile

It needed to finish finally. The current run greater within the Sharpe ratio for the International Market Index (GMI) lastly reversed in October. The decline marks the primary time in eight months that this widespread threat metric eased for GMI, an unmanaged, market-value-weighted portfolio that holds all of the  (besides money).

GMI’s Sharpe ratio dipped to 0.95 final month after reaching a two-year peak within the earlier month. The calculation relies on an annualized rolling 10-year window through month-to-month information and assumes a zero-percent risk-free fee all through.

GMI Rolling 10-Yr Annualized Sharpe Ratio

Threat-adjusted efficiency has slipped, however GMI’s rebound in October lifted it to a brand new file excessive. Accordingly, the index’s drawdown returned to zero final month, the place it’s been for a lot of 2021.

GMI Drawdown Historical past

GMI represents a theoretical benchmark for the “optimum” portfolio. Utilizing commonplace finance idea as a information, this portfolio is taken into account a most popular technique for the common investor with an infinite time horizon.

These assumptions are, after all, unrealistic in the true world. Nonetheless, GMI is beneficial as a baseline to start analysis on asset allocation and portfolio design. GMI’s historical past means that this benchmark’s efficiency is aggressive with lively asset-allocation methods total, particularly after adjusting for threat, buying and selling prices, and taxes.

For added context, readers can use this fundamental threat profile for GMI alongside the present month-to-month updates on efficiency and for the benchmark and its parts.

The desk beneath presents further threat metrics for GMI and its underlying asset lessons, based mostly on a trailing 10-year window by way of final month.

Efficiency & Threat Abstract

Listed here are temporary definitions of every threat metric:

• Volatility: annualized commonplace deviation of month-to-month return
• Sharpe ratio: ratio of month-to-month returns/month-to-month volatility (risk-free fee is assumed to be zero)
• Sortino ratio: extra efficiency of draw back semi-variance (assuming 0% threshold goal)
• Ulcer Index: period of drawdowns by deciding on adverse return for every interval beneath the earlier peak or excessive water mark
• Most Drawdown: the deepest peak-to-trough decline
• Beta: measure of volatility relative to a benchmark (on this case GMI)