Endowus provides clients with metrics designed to help in evaluating investment products.
For alternative investments, these metrics may differ from traditional historical returns due to distinct pricing frequencies and the relatively recent launch of many funds.
This approach aims to help investors understand the unique characteristics and potential of alternative investment opportunities.
The glossary below will provide greater detail on some of the metrics these alternative investment solutions tend to use.
Target return
Definition: The target return is the estimated annualized return of a fund; expressed net of fund-level fees but gross of Endowus fees. It provides investors with an indication of potential returns.
Purpose: Helps investors assess the potential capital gains for an investment and compare it with other opportunities.
Current distribution rate
Definition: The current distribution rate represents the most recent monthly yield, net of fund-level fees, annualized by multiplying by 12. It is expressed as a percentage of the current net asset value (NAV) without compounding.
Key Points:
- For illustrative purposes only: Monthly distributions are not guaranteed to be maintained at the targeted level or paid at all.
Purpose: Helps investors assess and compare the projected annual yield of an investment
Annualized volatility
Definition: Annualized volatility measures the standard deviation of a fund's actual performance returns over a specific period, extrapolated to a yearly basis. It reflects the historical variability of returns.
Purpose: This metric helps investors gauge the stability of returns, with higher volatility indicating greater risk.
Sharpe ratio
Definition: The Sharpe Ratio measures the risk-adjusted return of an investment by calculating the excess return per unit of volatility. It is calculated using the ongoing risk-free rate, specifically the FTSE Treasury Bill 3-Month USD, with all figures net of fees.
Calculation: Subtract the monthly risk-free rate from the fund's monthly return and divided by the monthly standard deviation of the fund's returns.
Purpose: This metric helps investors understand how much return is achieved for each unit of risk taken.
Back-tested Sharpe ratio
Definition: The Back-tested Sharpe Ratio measures the hypothetical risk-adjusted return of an investment strategy using historical data. It calculates the excess return per unit of volatility based on past performance.
Calculation: Uses historical returns and the FTSE Treasury Bill 3-Month USD as the risk-free rate, with all figures net of fees. The ratio is determined by subtracting the historical risk-free rate from the back-tested returns and dividing by the standard deviation of those returns.
Key Points:
- Hypothetical Nature: This metric is based on back-tested data and does not guarantee future performance.
Purpose: Provides investors with an indication of how the strategy might have performed historically, helping to assess potential risk-adjusted returns.