22. The Why, What, and How of Portfolio Analysis

Goals of Portfolio Analysis

The goals of a portfolio analysis might vary somewhat from investor to investor or from manager to manager, but ultimately, everyone is seeking to break down and understand the portfolio’s return. A comparison is usually made against a benchmark. Therefore, the very first and arguably most important step of portfolio analysis is to determine an appropriate benchmark for the portfolio. Although it might seem like a simple task to choose an index with the same types of securities as in the portfolio, an index usually does not exist that is a perfect match for each manager’s style and asset mix. Choosing an appropriate benchmark is critically important as the analysis ...

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