At StateTrust, we consider it an essential part of the investment process to continually oversee each facet of its development, so we can assure you of smooth sailing. We supervise money managers’ activities and performance along with any mutual funds in your portfolio. We also pay close attention to what is working within the portfolio and what is not, so we can stay on course in terms of meeting the goals that were originally summarized.

Performance Attribution

This is a means by which we measure the varying factors involved in your portfolio’s total return. Usually we use this method to examine how well the common stock segment of your portfolio is doing. There are two parts to it:

Performance Measurement:
Estimates returns, asset features, and sectors

		Equity portfolios: average price/earnings ratio, yield, market capitalization (large or small cap companies), price/book ratio, trading costs, turnover and concentrations for each asset class are calculated
		Fixed-income portfolios: average duration of the portfolio, quality ratings, maturity, and sector weights (percentage invested in agency, government, and mortgage-backed bonds) are calculated
Performance Evaluation: Takes a top-down approach to the issues that influenced portfolio returns
		Examines the existing macroeconomic climate plus returns on asset classes and subclasses (estimates from indexes, style managers)
		Looks over the Investment Policy Statement once again
		Checks on the strategic plans of each money manager/mutual fund
		Matches money manager/mutual fund performance with that of other managers using the same strategy plus portfolio features in order to ascertain:
		i. That the manager is not moving away from the original plan ii. What the differences are if a manager’s performance has shifted away (up or down) from the peer group Assesses the money manager’s performance against guidelines in the Investment Policy Statement

Terminating Money Managers:
It is quite costly to change managers. These are the questions that we ask in order to determine if a manager’s tenure should come to an end:

1.	Has investment style changed?
2.	Any organizational adjustments?
3.	Have assets or accounts experienced big increases/decreases?
4.	Any personnel turnover, new portfolio managers?
5.	Is manager’s performance below the average of the peer group?
6.	Is manager suitably registered with the SEC/state regulators?
7.	Is manager following the Investment Policy Statement with regards to securities, methods, and asset allocation?
8.	Any involvement with litigation, regulatory inquiries, or assessments?
9.	Fee estimation accurate?
10.	Were reports correct and on time?

Appraising Money Managers’ Performance:

Three different review standards have made it much simpler to evaluate how money managers are doing. First, the Association for Investment Management & Research (AIMR) created a uniform reporting system (in effect January 1, 1993). The Investment Management Consultants Association (IMCA) expanded on this system and also adjusted specific elements so that they matched investment consulting methods. Finally, the SEC set forth guidelines that govern advertising plus reports on performance outcomes.

Standards: Association for Investment Management & Research (AIMR)
Managers must follow these guidelines for performance reports:

		Estimating a composite return figure for discretionary portfolios that pay fees, represent a certain asset class, or similar plan
		Company composites should only include real managed assets
		Results should be weighted by asset
		Results should be presented by asset class and show cash equivalents or other securities held instead of an asset class
		Retroactive compliance should occur at least over 10 years
		Results of the composite return are the property of the money management company
		Before any fees are charged, results should be shown
		Amount of portfolios in the composite should be listed with assets plus composite assets as a percentage of company assets
		Complete return should include accrued income, capital appreciation (Portfolios should be assessed on a quarterly basis)
		Composite results should utilize external risk measurements (alpha, beta, standard deviation); internal risk measurement (dispersion) between specific accounts should be made available

Substantiating composite results and numbers related to performance is also encouraged:

Level I Verification: Certifies that at least one composite features a company’s real, discretionary, fee-paying portfolios. The connection of performance numbers, amount of clients, assets’ size, typical return deviation, and results’ distribution are all closely examined.

Level II Verification: The favored verification method, Level II features analyses of the investment management process and the measurement of performance as well. The evaluation consists of price substantiation, income stream tests, re-estimation of performance numbers, and a third-party audit that confirms compliance.