Know How|Fund Reveal| Analysis and Basis of FundReveal Portfolio Optimization Method and Performance Measures|Robo-Advisors|Mutual Funds|ETF

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This document and website and information contained herein are the property of Investment Risk Management Systems Inc. (IRMS), and are protected by copyright and intellectual property laws. All rights reserved. This document, website, its contents, or information are only for the purposes of performance analysis, and are neither intended to be, nor are advice of your past, current or future financial decisions, actions or inactions. You are at your own risk in using this information to draw any conclusions or arrive at any decisions, actions or inactions, financial or otherwise. You may not reproduce, retransmit, disseminate, sell, publish or broadcast this information; nor shall you use this information in connection with creating, promoting, trading, marketing products without the express written consent of IRMS. You are entitled to use the contents for your private, non-commercial use only. IRMS makes no warranties of any kind, whether explicit or implied, about the meaning, usefulness, applicability, completeness, correctness or accuracy of the contents of this document and website. No content, concepts, data, results, information, suggestions, graphs, tables or observations in this document or website are intended for financial or other advice, trading, investing or other financial actions, inactions, or dealing with any financial instruments; they shall not be construed to be advice, direction or suggestions for any financial or non-financial thinking, inactions or actions undertaken by the reader. IRMS or its management or employees are not registered financial advisors, nor planners, are not registered with the SEC or any governing agency, and do not hold licenses for any investment advice, trading, brokerage or planning. IRMS or its management or employees shall not be liable for any punitive, incidental, special, consequential, indirect or exemplary damages, including but not limited to damages for loss of profits, goodwill, other tangible or intangible losses, mental or physical pain or suffering caused by the use of the contents, or reliance on the contents of this document or website in any manner. The reader agrees to indemnify and hold IRMS, its management and employees harmless from any claim or demand, including attorneys' fees or other costs.
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Know-How

Basis of FundReveal Portfolio Optimization Method and Performance Measures

Modern Portfolio Theory (MPT) and Efficient Frontier concept developed by Nobel Laureates:

Portfolio performance is defined in two dimensions -- Risk (uncertainty of returns) and Return.
To optimize portfolio performance, the risk-return balance of underlying assets must be as close to the "Efficient Frontier" as feasible.
With "Efficient" portfolios higher risk is necessary to expect higher returns.
Asset class behaviors are stable over long time periods of efficient, stable markets.
Portfolio risk can be reduced by holding uncorrelated assets, such as stocks and bonds which are generally uncorrelated over long time periods.

But traditional rules-of-thumb based on MPT and Efficient Frontier methods are not effective in the 21st century global economy characterized by inefficient and unstable markets.

Asset class behaviors are unstable and traditional optimization based on asset allocation is not effective.
Performance of most funds and securities is not "Efficient." They operate far below the "Efficient Frontier," and their risk-return balance changes frequently.
Correlations between asset classes or market sectors changes frequently. The traditional assumption of diversification based on mixing different asset classes or market sectors, is ineffective.

How to successfully optimize portfolio performance in the current inefficient and unstable markets, while still using the well proven MPT and "Efficient Frontier" concept?

Forget traditional rules-of-thumb such as the old way of "buy-hold" passive management.
Choose funds whose risk-return balance is as close to the short term "Efficient Frontier" as possible.
Re-balance and change funds held in your portfolio dynamically (at least once a quarter), as asset characteristics and markets change.

Fundreveal-Advisor

How does FundReveal help in portfolio optimization?

FundReveal provides risk-return analysis and data to help you easily find funds that are close to the "Efficient Frontier."
It monitors risk-return behavior automatically to help you retune, rebalance your portfolio, and make changes dynamically, as asset characteristics and markets change over time.
It helps you ensure diversification with uncorrelated assets by observing their risk-return behavior trends.

What does a FundReveal Report contain? How is risk-return balance measured?

The report does not contain traditional measures such as Sharpe, Treynor or Information Ratios, or traditional alpha and beta measures. It does not use past total returns or ratings based on them.
Our research has demonstrated that the above measures and ratings are not useful for fund selection. They are useful for attribution analysis and rewarding fund managers based on their past performance. But they have little, if any, predictability of future risk-return behavior.
The FundReveal report shows absolute risk and return for each fund and asset class, over multiple time periods. It also compares risk-return balance of funds, sectors or indices relative to your chosen benchmarks.
FundReveal's web based interactive features let you rank and choose funds whose risk-return behavior matches your client's needs, observe changes in market sectors, and be prepared for sector rotation when necessary.
In principle, comparison of risk-return behaviors of funds requires measurement and analysis of changes in both dimensions of risk and return together. Proprietary analyses based on multi-factor regressions are recently being used to compare risk-return behaviors of funds and their dependencies on other factors such as portfolio holdings and market dynamics. They are useful for robotic portfolio management. But robots leave no freedom to advisors to bring their practical experience to managing client's portfolios.
FundReveal has solved this problem by developing simpler, yet effective ways of comparing risk-return behaviors of funds, allowing advisors to make the final portfolio decisions, while still maintaining precision in the application of MPT and "Efficient Frontier" based risk-return optimization principles.
With FundReveal, you can base your decisions on facts. No more dependence on traditional rules-of-thumb and performance measures, and opinions, views or bets made by others!

What are the FundReveal Performance Measures?

FundReveal measures performance of mutual funds, ETFs, market sectors and indices by a couplet: Average value of daily returns (including dividends if any) and; Uncertainty of returns (volatility or standard deviation of daily returns).
- Using daily returns helps in separating the impact of volatility, to at least some extent.
- In contrast, past total returns include uncertainty introduced by volatility. Total return of a fund indicates simply the difference in fund price at the end and beginning of a time period. It does not indicate how the fund's returns changed in between the time period. Conventional ratings use total returns, and hence lose critical risk-return behavior information of the fund.
Comparing Risk-Return balance of funds with the market is a quick way of ranking funds for preliminary selection. FundReveal uses a 4 quadrant comparison method. The corresponding ratings A, B, C and D are relative to the market benchmark, for a given time period.
FundReveal measures persistence of risk-return balance versus a market index, to separate funds with relatively consistent risk-return behavior, from those that change balance often and unpredictably.
Persistence ratings PR-A, PR-B, PR-C, PR-D are the propensity of the fund to have corresponding risk-return characteristics of A, B, C or D. Some funds more persistently tend to remain with a rating of either A, B or C. Other funds tend to have high persistence of D rating, meaning they have a propensity to take higher risk than market, yet produce lower returns than market. Some other funds dance all over the risk-return map and have ratings that unpredictably change between A, B, C or D. Both behaviors are undesirable and dangerous for investment portfolios.
To detect changes in risk-return behaviors of funds and markets, FundReveal measures are calculated daily. Performance effects, if any, of events such as changes in fund strategies, manager turnover, or international economic distress, are generally detected by the measures within few weeks.

Does it work?

We practice what we preach. We personally use FundReveal to get superior returns versus market, with peace of mind.
Our advisor subscribers use it to manage risk for their clients, while maximizing returns, efficiently and confidently. Results vary dependent on client needs, and how closely and objectively an advisor follows the FundReveal method.
Investor Empowerment Inc. has created proprietary strategies and models using our data feed of FundReveal performance measures licensed to them. They have also partnered with a sub-advisor to provide managed portfolio services to RIAs and institutions.
- Their model results are shown on the Home Page.
- For each model, "no-load" funds were chosen each quarter, for investment in the following quarter, based on pre-defined, fixed criteria applied to prior quarter's FundReveal ratings.
- Results of their proprietary models are summarized below.
- For each model, "no-load" funds were chosen each quarter, for investment in the following quarter, based on pre-defined, fixed criteria applied to prior quarter's FundReveal ratings.

See References

Terms Of Use

You the reader understand and agree to the following:

(1) This document, website and information contained herein are the property of Investment Risk Management Systems Inc. (IRMS), and are protected by copyright and intellectual property laws. All rights reserved. This document, website, its contents, or information are only for the purposes of performance analysis, and are neither intended to be, nor are advice of your past, current or future financial decisions, actions or inactions. You are at your own risk in using this information to draw any conclusions or arrive at any decisions, actions or inactions, financial or otherwise. You may not reproduce, retransmit, disseminate, sell, publish or broadcast this information; nor shall you use this information in connection with creating, promoting, trading, marketing products without the express written consent of IRMS. You are entitled to use the contents for your private, non-commercial use only. IRMS makes no warranties of any kind, whether explicit or implied, about the meaning, usefulness, applicability, completeness, correctness or accuracy of the contents of this document and website. No content, concepts, data, results, information, suggestions, graphs, tables or observations in this document or website are intended for financial or other advice, trading, investing or other financial actions, inactions, or dealing with any financial instruments; they shall not be construed to be advice, direction or suggestions for any financial or non-financial thinking, inactions or actions undertaken by the reader. IRMS or its management or employees are not registered financial advisors, nor planners, are not registered with the SEC or any governing agency, and do not hold licenses for any investment advice, trading, brokerage or planning. IRMS or its management or employees shall not be liable for any punitive, incidental, special, consequential, indirect or exemplary damages, including but not limited to damages for loss of profits, goodwill, other tangible or intangible losses, mental or physical pain or suffering caused by the use of the contents, or reliance on the contents of this document or website in any manner. The reader agrees to indemnify and hold IRMS, its management and employees harmless from any claim or demand, including attorneys' fees or other costs.

(2) All third parties referenced are registered trade names or trademarks or service marks of the respective third parties.

(3) FundReveal^SM and SHOWME^TM are registered service and trademarks belonging to IRMS.

(4) "I hereby declare and agree that I am using information from this service only for my personal use, and not for any commercial use, or dissemination to others. If I am a financial advisor, planner, fund manager, broker, or other financial industry or investment professional, I will so accurately declare my profession in this registration form, and will abide by the agreement and declaration as above. I will be held liable to IRMS for financial and other damages if I disseminate or use this information for my fee based, commission based clients or for other free services provided to my clients or non-clients."

(5) Information collected through www.fundreveal-advisor.com ("Web site") includes information collected automatically and information you submit. Information you submit through this Web site via input form, electronic mail (email), as an attachment to an email, or other method, is used only by IRMS and its employees, agents, contractors, and those acting on behalf of IRMS to fulfill delivery of a requested service or information. To contact IRMS by means other than email, visit our contact page for more information.

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