E X H I B I T 4 Summary of Return Information, December 2006 through December 2015
more for the comparative benchmark. At the other end, the founder-CEO index has 13 periods of − 6% or less (out of 108 months), which is greater than the 11 periods of − 6% or less for the VUG benchmark. Furthermore, extending the monthly distribution analysis to monthly returns exceeding + 4%, we see that the founder-CEO index accomplishes this feat 30.5% of the time (33 out of 108 periods) compared to the VUG, which does so 21.3% of the time (23 out of 108 periods). 45 The 30-stock founder-CEO index provides a greater likeli- hood (compared to a U.S. large-cap growth benchmark) of generating very strong monthly returns but may be more likely to generate strong negative returns. Overall, this more extreme behavior contributes to a higher stan- dard deviation of returns compared to the benchmark. 46 We observe from the distribution table of returns that situations in which monthly returns reside in the middle range ( + 4% to − 2%) occur more frequently with the VUG rather than with the founder-CEO index. 47 Exhibit 6 shows the cumulative returns and growth of a $1,000 investment from index inception. As the exhibit demonstrates, the founder-CEO index grows a $1,000 investment more than 142% in nine years to the level of $2,422. The VUG, on the other hand, appreci- ates the same investment by 81.5% to $1,815. The line representing the founder-CEO index provides a com- pelling pictorial that illustrates a clear advantage over the U.S. large-cap growth benchmark. Exhibit 7 provides peer comparisons with the founder-CEO index. The founder-CEO index provides an annual excess return of 3.48% over the VUG. Com- pared with 2,679 all U.S. equity funds in the eVestment database, the founder-CEO index ranks in the top six percentile. In terms of total returns, the founder-CEO generates 10.33% (top six percentile) during the period ranging from December 31, 2006 through December 31, 2015 (VUG total return for the same period was 6.85%) with a corresponding risk-adjusted alpha of 3.35% over the VUG (top 10 percentile). The IR is 0.45 (top five percentile) for the founder-CEO index, and the Sharpe ratio (SR) is 0.48 (top 15 percentile). 48 Exhibit 8 provides specific monthly returns for the founder-CEO index. A review of this exhibit illustrates the variability in returns for each month between year- end December 2006 through December 2015. Even in Cumulative Returns and Peer Analysis
Source: eVestment.
Exhibit 4 includes some additional summary return information for the founder-CEO index relative to the U.S. large-cap VUG benchmark. Consistent with the graph in Exhibit 2, the founder-CEO index beats the VUG benchmark for the one-year, three-year, and five-year periods. Furthermore, Exhibit 4 shows that the founder-CEO index dominates the comparative bench- mark for total performance since the inception of the index at the end of December 2006. The cumulative return for the founder-CEO index is 142.22% through December 2015, which is well ahead of the VUG return of 81.48%. Moreover, the average annualized returns over the entire period ranging from December 2006 through December 2015 is 3.48% higher (10.33% versus 6.85%, respectively). 43 Exhibit 5 shows how the founder-CEO index has a greater likelihood of monthly returns at both ends of the distribution spectrum. Both extremes (e.g., greater than 6% monthly return or less than − 6% monthly return) are more likely with the founder-CEO index than with the VUG. Out of the 108 monthly periods in the year-end December 2006 through December 2015 time period, the founder-CEO index provides 19 periods (17.6%) with monthly returns of 6% or more. 44 This compares with only 11 periods (10.2%) of monthly returns of 6% or Examining the Distribution of Returns
L EADERSHIP M ATTERS : C RAFTING A S MART B ETA P ORTFOLIO WITH A F OUNDER -CEO T WIST
W INTER 2017
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