Performance for Investments

What is Performance?

Performance in investments is the measurement of how well an investment has performed over a specified time period. It is a method for determining the returns or profitability of an investment relative to its initial cost or the market as a whole. 

 Typically, investment performance is measured using the following metrics: 

1. Return on Investment (ROI): ROI is a straightforward measure that calculates the gain or loss on an investment relative to its initial cost. It is expressed as a percentage and provides a simple way to evaluate the profitability of an investment. A higher ROI indicates a more successful investment. However, ROI alone does not consider the time period over which the return was achieved or the risk involved. 

2. Annualized Return: This metric addresses the limitations of ROI by calculating the average rate of return per year over a specific period. It takes into account the compounding effect, assuming that returns are reinvested. By annualizing the return, it becomes easier to compare investments with different holding periods. For example, if an investment generates a 10% return over 6 months, the annualized return would be approximately 20%, assuming that rate of return continues for a full year. 

3. Total Return: Total return is a comprehensive measure that considers both price appreciation and any income generated by the investment, such as dividends or interest. It provides a holistic view of the investment’s performance over a specific holding period, accounting for all cash flows associated with the investment. This metric is particularly useful for long-term investments or investments that generate regular income. 

4. Risk-Adjusted Return: Risk-adjusted return aims to evaluate an investment’s performance relative to the amount of risk taken. It recognizes that different investments have varying levels of volatility or variability in their returns. Risk-adjusted performance measures, such as the Sharpe ratio or the Sortino ratio, provide a more nuanced assessment by comparing the investment’s excess return (the return above a risk-free rate) to its volatility or downside risk. A higher risk-adjusted return suggests that an investment has generated higher returns relative to the risk incurred. 

5. Benchmark Comparison: Benchmark comparison involves comparing the performance of an investment to a benchmark, which could be an index (e.g., S&P 500) or a specific market sector. Benchmarks serve as reference points to assess how well an investment has performed relative to the broader market or a specific sector. If an investment outperforms the benchmark, it suggests that the investment has performed well in comparison. On the other hand, underperformance indicates that the investment has not kept pace with the benchmark.

It is important to note that the performance of investments can vary greatly depending on the type of investment (stocks, bonds, real estate, etc.), the investment strategy employed, and the time period considered. In addition, past performance does not guarantee future results, so it is imperative to conduct extensive research and consider multiple factors prior to making investment decisions. 

Why should you choose Clearwater for Performance?

Clearwater Performance Plus provides a comprehensive, cloud-based solution for institutional investors, RIAs, family offices, insurers, and other asset managers and owners who pride themselves on a competitive advantage and highly accurate returns. With multiple deployment options and an open architecture allowing for data from any source, Clearwater Performance Plus ensures insurance companies and asset managers alike can leverage this functionality, delight their clients, and displace other legacy vendors. 

The solution includes: 

  • Performance Book of Record (PBOR)  
  • Security Level Attribution and Indexes  
  • Custom Benchmarking  
  • Contribution to Return and Risk  
  • Support for Complex Instruments
  • Historical Loading of Returns
  • Open Architecture
  • Web-based Dashboards and Reports 

Performance Plus is the answer for firms looking for best-in-class performance measurement,
tailored to their needs. With a modular approach, Performance Plus allows firms to access custom sector attribution, multiple models, and track returns—without unnecessary additional functionality. This creates unprecedented ROI, unlocking value immediately, while also enhancing the transparency, accuracy, flexibility, and reporting of your returns.

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