Monitoring Portfolio Performance: Techniques & Importance

Lesson Transcript
Instructor: Beth Loy

Dr. Loy has a Ph.D. in Resource Economics; master's degrees in economics, human resources, and safety; and has taught masters and doctorate level courses in statistics, research methods, economics, and management.

Monitoring portfolio performance comes down to using good techniques and staying strategically aligned to your professional goals. Learn how industry leaders monitor their portfolios through auditing and constant re-alignment. Updated: 01/04/2022

Portfolio Performance

Kristi is a top performer at her investment firm. She is known for keeping her portfolios on track, often modifying them to garner more financial gains for her customers. Kristi wants to know what is performing well and what isn't. She uses portfolio performance monitoring to gather information about her specific investments (stocks, bonds, cash) and overall portfolios. Kristi wants both ongoing and periodic valuation, and she uses several performance measures to do this. She has several components that are organized to present information to her quickly. This is what Kristi calls her dashboard. It includes:

  • Target allocation for each investment
  • Threshold to determine low, medium, and high performers
  • Target for meeting expected return
  • Stock style of holdings
  • Stock type
  • Trigger levels for rebalancing portfolio
  • Historical performance of each investment

To get the data she needs, she generates several reports for each component of her portfolios. These include:

  • Allocations
  • Individual investment performance
  • Portfolio performance
  • Hypothetical outcomes of other portfolio mixes
  • Expected returns
  • Historical performance

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  • 0:03 Portfolio Performance
  • 1:15 Auditing Techniques
  • 2:18 Strategic Alignment
  • 3:11 Lesson Summary
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Auditing Techniques

Auditing techniques are comparisons of specific performance measures to their associated projected returns. Kristi uses these techniques to paint a picture of where she is and where she wants to be. She compiles comparisons of:

  • Different allocations of investments
  • Current investment allocations to her targeted goal
  • Investment performance to corresponding low, medium, and high thresholds
  • Current performance to expected return
  • Current portfolio performance to trigger levels for rebalancing
  • Different historical timeframes for specific investments and portfolios.

Kristi also needs to identify if the essence of any of the investments has changed. For example, some clients may only want shares of family-friendly, environmentally sound, U.S.-based companies. So, this is where Kristi has to do some digging. Her assistant, Ben, actually does the research for her, then they talk about whether managers of certain funds have changed their direction, incurred more risk, or are now investing overseas. These conversations help Kristi determine when to rebalance her portfolios.

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