Thursday, January 12, 2012

AIM Program Uses Morningstar Direct to Monitor Performance

Marquette University
Real-world training
Our Applied Investment Program features a set of three student-managed portfolios, as well as a curriculum designed to prepare students to become Chartered Financial Analysts (CFAs). We have a research room with workstations equipped with Morningstar Direct, similar to an investment company’s trading room.

Morningstar Direct has an incredible amount of data. You can research individual stocks and perform solid, fundamental analysis on thousands of companies. Its ownership information allows us to see what securities investment companies and hedge funds are buying and selling.

We give Morningstar Direct’s attribution analysis a pretty good workout. Because we manage real money, we want to know specifically why we have out- or under-performed our benchmark.
Dependable calculations
I also appreciate the ability to create a performance reporting template that can be used from month to month. It is reassuring to know the metrics, like tracking error, are computed the same way each time. Plus, the computations are done in a manner that is consistent with the CFA standard, GIPS (global investment performance standards). I know the performance metrics are right because I’ve checked, and I teach my students the same concepts. When I see a time-weighted return, I know it’s done in a consistent and academically correct manner.

Streamlined research
I’m presently studying the portfolio diversification benefits of global infrastructure investments. I created a data array to test whether infrastructure assets maintained typically low correlations during the 2008 financial meltdown.
I used custom calculations to generate a 24-month rolling correlation coefficient from the Morgan Stanley World indexes, and found that the correlations nearly went to 1.00 – and that water
utilities only went to 0.77. In 2001, the correlations of infrastructure assets were only 0.3. The entire effort took me about an hour, whereas five years ago this would have taken a week and wouldn’t have been as up-to-date.

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