Portfolio Construction and Performance Evaluation for Long-term Investors

21 Pages Posted: 18 Mar 2015 Last revised: 28 Aug 2015

See all articles by Geoff Warren

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Date Written: February 16, 2015

Abstract

An integrated approach to portfolio construction and performance evaluation is developed to support investment programs based around long-term cash flow projections and associated expected returns. Performance is evaluated by attributing realized returns into components reflecting the initial expected return, changes in discount rates, changes in expected cash flows, and currency effects. The approach is designed to focus attention on the key drivers of long-term returns – cash flows generated over the long run, relative to the price paid – while de-emphasizing price fluctuations arising from other sources. Application of the approach is addressed through an illustrative example, and discussion of implementation and other issues.

Suggested Citation

Warren, Geoffrey J., Portfolio Construction and Performance Evaluation for Long-term Investors (February 16, 2015). CIFR Paper No. 56/2015. Available at SSRN: https://ssrn.com/abstract=2579440 or http://dx.doi.org/10.2139/ssrn.2579440

Geoffrey J. Warren (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

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