What measures do you use to evaluate portfolio performance?

Investment Strategist Interview Questions

Sample answer to the question

When evaluating portfolio performance, I use a combination of quantitative and qualitative measures. Quantitatively, I analyze the returns generated by the portfolio over a specific time period and compare it to relevant benchmarks. I also calculate various risk metrics such as standard deviation and beta to assess the volatility and market sensitivity of the portfolio. Additionally, I consider the portfolio's diversification by analyzing the allocation across different asset classes and sectors. Qualitatively, I assess the portfolio's performance based on the investment thesis and strategy employed. I review the portfolio's performance relative to the broader market conditions and economic trends. I also consider any specific factors or events that may have impacted the portfolio's performance. By using these measures, I am able to evaluate the effectiveness of the investment strategies and make any necessary adjustments.

A more solid answer

When evaluating portfolio performance, I utilize a comprehensive set of measures to assess both quantitative and qualitative aspects. Quantitatively, I analyze the portfolio's performance by comparing it to relevant benchmarks and calculating key metrics such as returns, volatility, and beta. I also examine the risk-adjusted returns by considering factors such as the Sharpe ratio and information ratio. In addition to these quantitative measures, I take a qualitative approach by considering the portfolio's investment thesis, strategy, and allocation across different asset classes. I assess the portfolio's performance in relation to the broader market conditions and economic trends. I also analyze any specific events or factors that may have influenced the portfolio's performance. By combining both quantitative and qualitative measures, I am able to evaluate the effectiveness of the investment strategies and make informed decisions for portfolio adjustments. In my previous role as an Investment Analyst, I successfully used these measures to evaluate portfolio performance and provide insights to clients and portfolio managers.

Why this is a more solid answer:

The solid answer provides more specific details about the quantitative and qualitative measures used to evaluate portfolio performance. The candidate also incorporates their past experience as an Investment Analyst and how they have utilized these measures in their work. However, it could still benefit from more specific examples or achievements related to portfolio evaluation.

An exceptional answer

In evaluating portfolio performance, my approach is multifaceted and rigorous. Quantitatively, I employ rigorous statistical analysis to assess risk and return measures, including measures of volatility such as standard deviation. I also utilize sophisticated risk-adjusted performance measures such as alpha and the Sortino ratio. Additionally, I conduct advanced attribution analysis to measure the impact of various factors on the portfolio's performance. Qualitatively, I delve deep into the investment process, analyzing each individual holding to evaluate its contribution to the portfolio's performance. I assess the quality of the investment thesis, the execution of the strategy, and the portfolio's exposure to different market factors. I also conduct scenario analysis and stress testing to understand how the portfolio would perform under different market conditions. Moreover, I leverage technology and data analytics tools to enhance my evaluation process. For example, I use data visualization techniques to identify trends and patterns in the portfolio's performance. In my previous role as a Portfolio Manager, I successfully implemented this comprehensive approach to evaluate portfolio performance, resulting in improved investment decisions and client satisfaction.

Why this is an exceptional answer:

The exceptional answer demonstrates a deep understanding of portfolio evaluation and incorporates advanced techniques such as risk-adjusted performance measures, attribution analysis, and data visualization. The candidate also highlights their experience as a Portfolio Manager and the positive impact of their evaluation approach on investment decisions and client satisfaction. This answer showcases the candidate's expertise and ability to go above and beyond the basic requirements of the job.

How to prepare for this question

Familiarize yourself with different quantitative measures used to evaluate portfolio performance, such as returns, volatility, and risk-adjusted measures.
Research advanced techniques and tools used in portfolio evaluation, such as attribution analysis and data visualization.
Practice analyzing case studies or sample portfolios to hone your evaluation skills.
Keep up-to-date with market trends and economic indicators to assess their impact on portfolio performance.
Be prepared to discuss specific examples or achievements related to portfolio evaluation in your past work experience.

What interviewers are evaluating

Analytical and problem-solving skills
Knowledge of financial analysis tools
Ability to work collaboratively in a team environment
Adaptability to changing market conditions and client needs