What is the best way to monitor the performance of our portfolios?

Hi Mark,

What a great question and one that many industry specialists spend hours debating over!

The short and over simplified answer to your question is to compare the performance of your whole portfolio to one of the mixed investment fund sector averages. There are three mixed sectors as follows:

1. Mixed Investment 0-35% shares - funds in this sector group contain equity content of between 0-35%.

2. Mixed Investment 20-60% shares - funds in this sector group contain equity content of between 20-60%.

3. Mixed Investment 40-85% shares- funds in this sector group contain equity content of between 40-85%.

The funds in the above sectors can be a bit like apples and pears so this is a bit of a blunt tool but a typical diversified portfolio can be compared against one of these sector averages depending on what level of risk the portfolio is taking. If you are taking a low level of equity risk in your portfolio use #1, use #2 for medium and #3 for a higher risk portfolio.

You can find the performance of these sectors on the Trustnet website: https://www.trustnet.com/fund/sectors/performance

A would caveat the above with, it is still important that each of the underlying investment funds in your portfolio are reviewed too especially if these are actively managed funds i.e. don't just look at your whole portfolio performance and assume all ok under the bonnet. It is time consuming work monitoring individual funds and this is where the analysis gets more complicated as looking at just 'performance' is a bit 2D. To explain, a fund might be doing extremely well and generating great absolute returns but it might be doing this by taking excessive risk; risk that may be outside of your tolerance / appetite. Equally a fund may look poor compared to peers in one period but be taking much lower risk. For this reason we look at many metrics at fund level but risk adjusted returns are key, along with drawdown and consistency of returns. We use ratios; sharpe, information, sortino, alpha and beta to help us carry out this analysis.

Other more complex options in monitoring your portfolio:

- is to quantify your objective and compare it to that, i.e. if you want to beat inflation; compare your portfolio to RPI.

- breakdown your portfolio into broad asset classes; cash, bonds, property, uk equity and international. Then select some simple market indices (FTSE 100, FTSE World etc) in the same proportions to compare against. You'll need a fancy spreadsheet to do this but you can find market data on the FT website.

As you can see its an interesting topic! Its a big job monitoring funds and portfolio, we have a team of people to do this for our client portfolios.

I hope this helps but if you have any further questions please let me know.

Best wishes

Laura