The Predictive Power of Portfolio Characteristics

11 Pages Posted: 20 Dec 2014  

Barry Gillman

Brandes Investment Partners

Erianna Khusainova

Lazard Asset Management

Juan Mier

Lazard Asset Management

Date Written: December 2, 2014

Abstract

In order to predict future relative results within a universe of equity portfolios, the authors hypothesize that it is possible to use selected portfolio characteristics as opposed to relying on past performance. This research uses Active Share and Concentration Coefficient data for universes of US, international, and global equity mutual fund portfolios to develop a method of predicting the future relative ranking of the portfolios’ information ratios. The predictive power of this approach appears statistically significant for the five-year period of 2009-2013, but not during the financial crisis years of 2007-2008. The authors believe these results are indicative of the usefulness of this approach, but not conclusive due to the limited time frame (seven years of data) and universe (174 funds). The authors invite collaboration for further research.

Keywords: active share, concentration coefficient, information ratio, predicting fund performance, mutual funds, Fundamental Law of Active Management

JEL Classification: C13, N20, G1, G2

Suggested Citation

Gillman, Barry and Khusainova, Erianna and Mier, Juan, The Predictive Power of Portfolio Characteristics (December 2, 2014). Available at SSRN: https://ssrn.com/abstract=2539670 or http://dx.doi.org/10.2139/ssrn.2539670

Barry Gillman (Contact Author)

Brandes Investment Partners ( email )

11988 El Camino Real, Suite 600
San Diego, CA 92130
United States

Erianna Khusainova

Lazard Asset Management ( email )

United States

Juan Mier

Lazard Asset Management ( email )

United States

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