"What are the recovery
periods for Bestinver's funds?"
BESTINVER INTERNACIONAL (Global Equity)
- Maximum long-run recovery period: 3 years and 7 months
- From 22/5/2001 to 12/3/2003 the maximum loss was 51%
- From 22/5/2001 to now the gain exceeds 35%
BESTINVER BOLSA (Spanish Equity)
- Maximum long-run recovery period: 1 year and 10 months
- From 07/01/1999 to 14/02/2000 the maximum loss was 19%
- From 07/01/1999 to now the gain exceeds 277%
BASIC CONCEPTS
UNIT: the assets of mutual/pension funds are divided into a number of
units, with a unit being similar to a share in a company which trades on the
stock market.
NET ASSET VALUE: this is the price of a unit at any given time. This
amount is calculated daily based on the price of the different financial assets
in which the fund invests, so that it always reflects the unit's real value. It
is important to note that this value is a net figure, after management and
custodian fees have been deducted.
ASSETS: this is the amount of capital managed by the fund. The greater
the amount, the more stable the fund, since it can better diversify its
investments.
UNIT HOLDERS: the number of people who have deposited their savings in a
particular mutual/pension fund. Ideally, the ratio between assets and unit
holders will be as low as possible; in this manner, if a large number of unit
holders sell, it will not affect the asset value of the mutual fund.
FUND MANAGER: the company which manages the assets deposited in the
mutual/pension fund.
PORTFOLIO: this term refers to the group of financial assets in which
the fund invests.
PRICE-EARNINGS RATIO (P/E): this indicates how cheaply or expensively a
company trades. It is calculated by dividing a company's market capitalisation
(stock market value) by its net profit. It thus represents how many times net
profit goes into a company’s stock market value. The lower it is, the cheaper
the company is.
STATISTICAL TERMINOLOGY I
VOLATILITY (Standard Deviation): This is a statistical method for
evaluating to what degree a series of values deviate (move up and down) from
their average. When we calculate a fund’s relative return volatility, we are
measuring the consistency of a fund's returns in terms of whether they are
higher or lower than the rest of the funds in its sector. The higher the
volatility, the less consistent the fund's return will have been compared with
the funds in its sector.
CORRELATION: The correlation coefficient measures the degree of
similarity between two or more variables. There is said to be a statistical
correlation when the coefficient is above 80%. When selecting a portfolio, if
two or more stocks show a high degree of correlation, only one should be
chosen, as its performance is likely to be similar to the others, so
diversification would be merely theoretical.
ALPHA: A coefficient that measures to what degree the fund has performed
better or worse than expected (relative to the benchmark index) given its risk,
defined by its beta. It indicates the excess returns for a particular level of
risk. A high alpha indicates a good relative performance compared with the
market.
BETA: Measures the sensitivity of the fund’s returns relative to the
market's returns. As the market has a Beta of 1, a Beta higher than 1 implies
an aggressive portfolio, so the fund could outperform the market, but the risk
would also be higher. The lower the Beta, the lower the expected returns
compared to the market’s, but downside risk is also lower.
SHARPE RATIO: This measures a fund’s risk/return ratio; i.e. the reward
for the risk (volatility) assumed. The higher the fund’s Sharpe Ratio, the
better the better the reward for the risk assumed.
TRACKING ERROR: Measures the degree of fluctuation registered by the
portfolio compared with its benchmark index. In active management, the decision
to overweight or underweight moves the fund further from the benchmark index.
STATISTICAL TERMINOLOGY II
INFORMATION RATIO: Indicates the difference in a fund’s return with
respect to its index and relates it to the tracking error, that is, to the
fund’s relative risk vs. the index. The larger it is, the better indication of
the manager’s skill.
R2: represents the percentage change in return of the dependent variable
(in this case, the mutual fund’s return) which may be explained by the
independent variable (the return on the index). If we take for example a fund
which very closely tracks index X, and we carry out a regression on index X, we
will obtain an R2 equivalent to 1, or, at least, very near to 1. This means
that practically all of the fluctuations in the fund's returns can be explained
by the performance of the index in question. This data is crucial to validating
alpha and beta. The smaller the R2, the less valid the alpha and beta will be.
The R2 may also be used as a diversification tool.
CO-MOVEMENTS WITH THE BENCHMARK:
BEGINNING OF THE WORST PERIOD:
A) Calculate the historic return for all of the months of this period (last 1Y,
3Y, 5Y, 7Y and from the start). B) Identify the accumulated periods of maximum
negative returns. C) Look for the month marking the start of this period.
NUMBER OF MONTHS WORST PERIOD LASTED:
Number of months the worst period of negative returns lasted.
NUMBER OF MONTHS IT TOOK TO RECOVER:
Number of months it took to recover the accumulated negative return.
EUROS WON FOR EVERY EURO LOST:
For each period, the sum of positive returns is divided by the sum of negative
returns (the value is always negative because the absolute value of the sum of
negative returns is not used in the calculation).
WINNING /LOSING MONTHS: For
each period, this is simply the ratio between the number of months with
positive returns and the number of months with negative returns.
GENERAL TERMINOLOGY
HIGHWATER MARK: This is used to calculate the earnings commission. It is
a system in which the manager only earns the commission when the fund’s value
exceeds the previous maximum value.
EURIBOR: This is an acronym for “European Interbank Offered Rate”. This
index is calculated with the data of the leading banks in the euro zone, and
consists of the average spot interest rate for euro-denominated spot deposit
transactions. This interest rate is applied to transactions between banks in
Europe and is based on the offer prices of loans that 64 of the main European
banks make to each other; in other words, this is the percentage a bank pays
another bank for letting it borrow money.
LOCK-UP: Because of the nature of hedge funds, periods of time are
habitually established in which the investor cannot request redemptions; these
periods may last years.
LEVERAGE LIMIT: The concept of leverage (taking out a loan=going into
debt) is a fundamental feature of hedge funds which distinguishes them from
traditional funds. The rules regulating hedge funds indicate that they may take
on debt up to a limit of five times their assets (500%). They have the
advantage of being able to increase the potential return on an investment.
