Hello

Please if you could help in understanding both Information ratio and Sortino ratio and how both these ratios are used in analysis of performance data of Mutual Funds

thanks
sila

Hi,

I'm not sure either are particularly useful measures for mutual funds (I'm sure that will generate some comment)

Information ratio measures the excess return against a benchmark against the relative risk or consistency of added value. It only makes sense to use this measure if the mutual fund manager is managing a portfolio against a clear benchmark. You could compare against the peer group median but perversely this makes a quite stable portfolio look volatile if the median is more volatile compared to the portfolio.

Sortino Ratio measures the excess return against the minimum accepted target against downside risk (compared to the minimum target) and again only useful if the portfolio is managed with this target in mind. Of course Sortino might be useful if the investor is concerned about downside risk.

Depending on what you want as an investor Sharpe ratio or M squared are often used to rank mutual funds on a risk-adjusted basis.

Best regards

Carl

__________________
Carl Bacon is one of the world's leading authorities in performance analytics, for more information visit Moderators

Hi

If both Information n Sortino Ratio are not the right measures of mutual funds , then what are the right measures for evaluating performance of mutual funds looking at both risk and returns. What I meant was : If we have to look at the amt of return generated with the risk taken and or how much risk to be taken to generate a certain return and so on . How do we do that ??

regards

Sila

Hi,

Risk like beauty is in the eye of the beholder. First of all decide the characterstics that suit you best.

That said for mutual funds I prefer M squared. It is derived from the Sharpe ratio and will always give you the same rank but with M squared you also get a measure of risk-adjusted excess return

Best regards

Carl

__________________
Carl Bacon is one of the world's leading authorities in performance analytics, for more information visit Moderators