Presentation: Understand your portfolio’s risk level and performance

Here’s some text to help you put together a topical presentation on helping clients understand a portfolio’s risk level and performance that you can customize for your next client meeting.

To make it easier for you to prepare materials for clients, we’ve developed this text for a slideshow on the topic of portfolio risk and performance.

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SLIDE 1

Understand your portfolio’s risk level and performance

A number of metrics can help you understand how risky your portfolio is and how well it’s doing.

SLIDE 2

Beta (or Classical Beta)

It’s a measure of an individual security’s risk against that of the broader market. In popular parlance, however, beta refers to the return you get by tracking the market.

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Alpha

The excess return once all the beta-driven return has been accounted for. For example, say a manager builds a Canadian small-cap portfolio that earns 23%. She’s weighted individual securities differently than the benchmark index based on her own stock-picking skills. If the S&P/TSX Canadian Small Cap Index return is 18% for the year, the extra 5% the manager earned is in most cases called alpha.

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Other Types of Beta

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Bespoke Beta

It’s a measure of exposure to local risks such as sector, country and style. Sector-specific ETFs that cover the Canadian energy industry are good examples of local beta products, as are country or region ETFs, as well as ETFs that cover a specific capitalization or style subset of the market.

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Alternative Beta

A measure of exposure to unusual systematic risks. Examples would be exposure to foreign currencies, commodities and real estate. Alternative betas expand systematic risk exposure beyond typical stock and bond portfolios.