Main asset classes: April 2021 risk review

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Today’s post features the first risk review column for major asset classes, a monthly update that accompanies the monthly and readers can use this trio for a quick summary of historical and expected performance and how that compares to several measures of risk.

Risk analysis is a wide and deep topic and therefore this monthly update will not be anyone’s idea of ​​a full treatment. Rather, the aim is to offer a comparison of the major asset classes in one fell swoop for a range of metrics – a comparison that isn’t exactly ubiquitous among the usual suspects for financial news.

With that in mind, the table below highlights several types of risk for the 10-year window to the end of last month (April 30, 2021). To get an idea of ​​how risk accumulates relative to performance, assets are categorized by 10-year annualized return.

For the underlying indices which represent the asset classes, you can refer to the table in the performance report publication referenced above.

Summary of performance and risks
Summary of performance and risks

For a bit of historical context on the evolution of risk, a regular feature of this update will be a graph of the annualized 3-year Sharpe ratio for US stocks (Russell 3000 index), US bonds (Bloomberg Aggregate Bond index). ) and the Global Market Index (GMI), an unmanaged, market-value-weighted portfolio that holds all major asset classes (except cash) and represents a theoretical benchmark for the portfolio. optimal ”.

3-year rolling annualized Sharpe ratio

3-year rolling annualized Sharpe ratio

For reference, here are brief definitions of each risk measure:

  • Volatility: annualized standard deviation of monthly return
  • Sharpness ratio: monthly returns / monthly volatility ratio (the risk-free rate is assumed to be zero)
  • Output report: Downside excess performance of the semi-variance (assuming a target threshold of 0%)
  • Ulcer index: duration of drawdowns by selecting a negative return for each period below the previous peak or high water mark
  • Maximum draft: deepest decline from peak to trough
  • Beta: measure of the volatility relative to an index (here GMI)
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