Reviewing the Performance of an Investment Portfolio -  Crafting Success Together

"Investing is an act of faith. A belief in the future."

- Robert G. Allen

How do you confirm if your beliefs about the future are correct? When it comes to the world of investments, this process is achieved through performance reviews. These reviews stand as milestones, marking your investment progress. They also provide a great opportunity to reflect upon the development of your portfolio and make necessary adjustments. Performance reviews are especially important for private clients who stake significant capital, trust, and expectations in the management of their portfolios.

This blog post aims to provide you, whether you're already a client or a prospective one, with an overview of essential components to assess in a performance analysis. This will enable you to gain a clearer grasp of the status of your investments, the accomplishments attained, and whether any adjustments are necessary.

Components of an Effective Review

Performance reviews aren’t a mere tick on the checklist. They are the lens through which the complexity of an investment's journey come into focus. To better understand how your portfolio is doing, we will go through eight components that are useful to reflect upon in a performance review.

Components of an Effective Review:

1. Objectives That Make Sense
   Crafting an investment strategy starts with envisioning the end goal. Defining clear, tangible objectives not only gives a direction but also acts as a constant reference point. It facilitates comparisons between 'where we wanted to be' versus 'where we are.'
2. Risk Isn’t Just a Four-Letter Word
   Risk and return are two sides of the same coin. Grasping this balance is crucial. Employing metrics such as the Sharpe ratio (comparing the return of an investment with its risk) not only measures this equilibrium but also clarifies the fundamental nature of a portfolio's progression, transforming the conceptual into something concrete.
3. Relative vs. Absolute Metrics
   To truly understand an investment's growth, look at both its relative and absolute performance. While the former compares returns to a benchmark, the latter reveals the portfolio's standalone performance.
4. Appropriate Comparisons
   It's vital to ensure that any comparison made is between comparable subjects. Just as one wouldn't compare apples to oranges, comparing two distinct portfolio types would provide misleading insights.
5. Asset Diversification Analysis
   A good review takes a close look at asset allocation, as it serves as the backbone within a portfolio. Regularly inspecting this mix, and adjusting it, if necessary, ensures that the investment strategy remains aligned with client objectives.
6. Valuing Consistency
   Evaluating performance requires a focus on sustained results. Regular, stable returns speak to the robustness of the investment approach and the manager's skill in managing market ups and downs. While short-term shifts can mask a portfolio's true progress, keeping a long-term view is crucial. Therefore, the time span of the reviewed period matters significantly.
7. Open Communication
   Open and prompt communication forms the backbone of a meaningful performance review. It's vital for investment managers to offer detailed updates encompassing metrics of performance, current holdings, both captured and potential gains, as well as incurred costs. Consistent dialogues with clients to discuss outcomes and answer any queries strengthen the bond between client and manager.    
8. Costs in Context
   Performance is not just about the gross returns but what remains after deducting associated costs. Regular evaluations should include the impact of management fees, transaction costs, and other overheads to provide a clear picture of net returns. A valuable manager justifies these fees with unparalleled service and results.

Performance reviews act as the compass in the intricate landscape of investment management for private clients. By holistically considering every facet, from risk returning to fees, managers can offer clients a meticulous assessment of their portfolios. This process, when executed with diligence and transparency, builds trust and collaboration, ensuring the journey ahead is navigated with shared understanding and mutual respect.