Mirror, mirror, on the wall, who is the Sharpest of them all?

In an ideal world, an investment portfolio would deliver a total return in excess of that of the risk-free rate (e.g. Gilts) without taking any additional risk at all. Sadly, that is not possible.

The pursuit of excess returns, or “alpha”, forces us out of traditional risk-free asset classes into riskier areas of the market. Riskier could mean many things, including less liquid (how easy something is to sell), leveraged (borrowing to accentuate returns) or more volatile.

Volatility measures the dispersion of returns for a given investment, which means that a higher volatility investment could deliver a very good month in terms of performance, followed by a very significant loss in the next. This also has the effect of making timing a far more critical decision.

Luckily, there is a commonly used method for calculating the risk-adjusted return of an investment, called the Sharpe Ratio. This is the average return earned in excess of the risk-free rate per unit of volatility (or risk). Therefore, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.

Granted, the Sharpe Ratio does not take into account liquidity, leverage or other forms of risk, but it does act as a good guide for assessing comparable investments within a sector.

The Sharpe Ratio of TM Cerno Select measures 1st out of 223 comparable funds in the Mixed Assets – Aggressive GBP sector over 1 year. Over the last year, our investors have received a greater return per unit of risk that we have taken with their money than they would have with any of our peers.


For more information on the TM Cerno Select fund please refer to the fund page: https://cernocapital.com/funds/tm-cerno-select/

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By |2015-08-19T13:03:41+00:00August 19th, 2015|Asset Class Returns, Cerno Capital, Cerno Capital Posts, Other Posts|

About the Author:

Katie is responsible for the firm’s marketing strategy. As part of this role she coordinates public relations and communications and is responsible for the firm’s visual identity and livery. She works alongside the front office on existing and prospective investor contact, including all aspects of the firm’s relationships with intermediaries. Katie manages the firm’s outreach programme which helps UK women athletes, explorers and adventurers and promotes participation and inclusion. Katie previously worked at Savills, and holds an MA in Art History from the University of St Andrews. Katie is a member of the Chartered Institute of Marketing.