Measuring Investment Skill in Multi-Asset Strategies: An Empirical Study of the Information Coefficient as Weighted Rank Correlation

摘要

Over the past decade, the investment industry has come to appreciate the importance of asset allocation and its role in achieving clients' financial objectives. The result has been a profound change in the landscape for the industry in terms of both product design and distribution. Increasingly, the asset flow to investment managers has been heavily driven by multi-asset funds and balanced funds rather than individual stock or bond funds. With the growing prominence of multi-asset investing, the role of active asset allocation has also become more important. For investors who are evaluating multi-asset funds and for asset allocators trying to set expected asset allocation alpha, the measurement of asset allocation skill is a crucial task. To the latter end, this article provides an intuitive methodology to measure asset allocation skill within the formal context of the fundamental law of active management, a well-known characterization of portfolio managers' alpha generation process. Specifically, the authors show how weighted rank correlation provides an intuitive and transparent version of the information coefficient. Their study is framed within a novel simulation-based framework that they use to analyze the impact of asset allocation skill and its implications for estimating reasonable expectations of asset allocation alpha.