E X H I B I T 9 Scatterplot Returns
Source: eVestment, all U.S. equity universe.
associated standard deviation of returns on the x -axis. The VUG is situated very close to the median inter- sects. Interestingly, the founder-CEO in the upper right quadrant suggests that, within the eVestment database of 2,679 U.S. equity investment strategies, relatively few strategies offer a similar risk–return pattern. Most of the strategies in the database contain less risk, and only a handful of the strategies offer more return. The founder-CEO index appears to offer an attractive risk– return trade-off for those investors willing to assume above-average risk. 49 Risk Analytics: How Did the Founder-CEO Index Perform? Exhibit 10 provides the risk analytics for the founder-CEO index relative to the VUG. The bench- mark provides a relatively high correlation (0.92) to the founder-CEO index. The beta for the founder-CEO index is above average risk (1.05), which corresponds with the higher standard deviation (19.72%). The above-average up capture (118.05%) and down capture (102.03%) ratios associated with the founder-CEO
index appear consistent with the return distribution chart that illustrates how returns for the founder-CEO index are more skewed to either a strong positive or negative distribution tail. We note that the higher up capture (e.g., 118.05%) over the downcapture (102.03%) provides an upward bias and appears consistent with a positive risk-adjusted alpha for the founder-CEO index (3.35%) over the VUG. 50 Clearly, the overall benefits of more frequent positive periods (corresponding with strong returns as shown in Exhibit 8) more than offset the above-average negative returns during this period of study. 51
PERFORMANCE ATTRIBUTION
Where Are Returns Generated? Asset Allocation or Security Selection?
The founder-CEO index provides performance of 142.27% during the time period of year-end 2006 through year-end 2015, compared to 81.48% for the U.S. large-cap (VUG) benchmark. Excess return is 60.79%. As we see in Exhibit 11, the performance
W INTER 2017
T HE J OURNAL OF I NDEX I NVESTING
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