Portfolio Benchmarking in Findur

by Lucido Group

Findur has two methods to model benchmarks: a model portfolio or an index. A model portfolio uses an internal portfolio to capture transactions in the benchmark to build the positions. Index benchmarking does not require an internal portfolio or benchmark transactions. All that is required is to import the index levels with the required frequency.

The second method models the benchmark as an index. There is no need to enter the details of the securities in the benchmark. Performance is calculated as the percentage change in the index.

The first method will need to be adopted if it is necessary to perform performance attribution analysis. If this is unnecessary then the second method might be preferable as it will require less work to configure and to maintain.

Model Portfolio Benchmark

There is more configuration required to setup a model benchmark but there are benefits to the approach. All of the features available to a real portfolio will be available to the benchmark portfolio including personnel security, position keeping, cash management, simulation results, compliance and reporting.

Additionally, when a benchmark is modeled in a portfolio, there are additional capabilities available including –

  • Performance attribution of the benchmark, such as the return due to changes in interest rate levels, running yield, convexity, and so on;
  • Detailed portfolio manager excess return;
  • Position reports by ISIN relative to benchmark;
  • Maturity bucket reports;
  • Dynamic duration compliance rules, such as the portfolio being no more than 3 months duration above or below benchmark duration;
  • Dynamic risk compliance rules, such as ones that compare portfolio VaR to benchmark VaR;
  • Maturity bucket compliance rules;
  • Automated rebalancing, such as maintaining a fixed percentage of the portfolio’s market value in specified ISINs.

Benchmark Index

The only feature available to a benchmark index is performance. The index will have no security positions, duration, risk or detailed reporting available. A benchmark index is easily setup and maintained.

If all that is required is to monitor portfolio excess return, or another portfolio performance statistic such as Sharpe ratio, a benchmark index will be adequate.

Suitable Client Implementations

We can help plan a project to setup a benchmark to handle the operational requirements for benchmark position keeping, security, compliance, rebalancing and reporting.

Findur’s performance measurement module has limitations and, in some cases, awkward implementation details, so it is important to consider its suitability. We can help with the evaluation of Findur’s use for purpose. When Findur’s features are not well-suited, we can help plan an alternative architecture that will integrate with a more suitable solution.

Openlink has enhanced the performance measurement module in a recent version, although its release details are not certain yet. If you are interested in more details, feel free to reach out with any questions.