Question

1. Explain what the raw return on an actively managed portfolio tells an investor about the skill of the portfolio manager. What computations one would need to undertake in order to transform the raw return into a measure which is informative about manager skill? Are there any pitfalls or risks associated with these computations that might erode the accuracy of the skill measure that you have proposed?

Answer 1

Raw return an actively managed portfolio will be telling investor that rate of return which has been ordered by the active fund Manager on the investment,which has been made into the market and it is not a reflection of the risk, which he has undertaken in order to earn the rate of return.

I will be trying to adjust those raw rate of return from the market with the risk which had will taken by these fund managers in order to earn the rate of return in the market so I will be trying to adjust these raw rate of return with the risk associated with earning those income and it will be helpful in order to disclose the performance of the active fund manager in a better way.

I will be trying to adjust the rate of return for inflation and its exposure and quality of the portfolio along with the size of the management.

this adjustment will be helpful in order to reflect a proper situation of the fund managers performance in it will be helpful in order to help investors to select better fund which are actively managed.