Painting a richer picture of past portfolio performance

New portfolio analytics tool drives fruitful conversations by capturing the impact of advice on risks and returns

Painting a richer picture of past portfolio performance

When YCharts first launched its original Model Portfolios functionality two years ago, it answered a critical question that clients had been asking: is it possible to evaluate and analyse portfolios in the same way that they could for other securities?

“What we did was give YCharts users the ability to define a portfolio, based on which our platform would generate a security that they can look at, compare using our different applications, and analyse the same way that they would a mutual fund or ETF,” said Caleb Eplett, the company’s chief product officer. “And unlike some other software products out there, ours expands that ability beyond just report outputs, but actually produces an asset that advisors can chart or show in our interactive tools and more easily explain to clients.”

As powerful as that ability is, it still has its limits. Following positive reception and uptake for the product, Eplett said their users expressed a desire to model a portfolio’s historic risk and returns not just based on their current investment strategy, but also incorporating other possible strategies they could have used before. In practice, that meant having the ability to go back and time and capture past changes in portfolio holdings.

“That led us to build this new Dynamic Model Portfolios product,” Eplett said. “Through that functionality, users can input not just their current holdings and allocations, but also data on the past make-up of their portfolios. It does basically the same thing, creating a single security to represent the portfolio, but it paints a much richer picture of historical portfolio performance.”

To create a Dynamic Model Portfolio, users may upload Excel or CSV files; the files should contain data on what holdings a portfolio had on specific dates, and what weights each holding had in the portfolio at that date. Users are also asked to specify other details within the YCharts interface, such as their advisory fee (if applicable), the portfolio benchmark, and the portfolio rebalancing frequency.

“Right now, YCharts has a pretty robust covering as far as the universe of securities that you can use – obviously stocks, ETFs, mutual funds. All of those securities can be combined and put into Dynamic Model Portfolios,” Eplett said. Users may also incorporate specific indices, he said, with around 30,000 benchmarks spanning different geographies, sectors, factors, and asset classes enabled on the YCharts platform.

“Soon, we’ll also be capable of accommodating separately managed accounts that were recently added to our database,” Eplett said.

With the Dynamic Model Portfolios functionality, advisors can get a more accurate bead on a portfolio’s risk characteristics over certain time periods. From an absolute sense, they can show how past securities selection decisions – rotating from growth to value, for example, or scaling back on broad U.S. equities market exposure to overweight toward tech companies – have affected the risk and return performance of a given portfolio. If a user wants to backtest a security with a short performance history, they have the option of using a similar security as a proxy in their models.

The system also allows people to evaluate the portfolio’s performance against specific indexes or ETFs, allowing fruitful discussions about how it reacted during different market conditions. That, in turn, sets the stage for discussions on how much value an advisor might have delivered through active management, as well as providing information that could lead to smarter investment decisions.

“Think about a really wild year in the markets like 2020 has been,” Eplett said. “You can go see how different changes that you may have made to your allocations would have perhaps safeguarded your clients from some of the downturns, or helped them capture more of the gains during the bull market periods with this new functionality.”

The system also allows users to compare the risk and return performance of different portfolios over a specific period. An investment advisor that wants to see how one portfolio did compared to another during a specific window of time, they can simply toggle back and forth to see what trade-offs happened in terms of the upside and downside that’s captured, as well as the total return potential in different scenarios.

“One of our main value propositions is the ability to facilitate better communication with clients. Being able to discuss what’s in a client’s portfolio right now, as well as how different changes in the portfolio have helped or could have helped shield clients from adverse market conditions, goes a really long way,” Eplett said. “Not only does it help clients to see how different events impacted their portfolios, but it also provides peace of mind to understand how their portfolios might react to similar market events in the future.”


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