Masters Degrees (Statistics and Actuarial Science)
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Browsing Masters Degrees (Statistics and Actuarial Science) by Subject "Benchmarking (Management) -- South Africa"
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- ItemPortfolio Opportunity Distributions (PODs) for the South African market : based on regulation requirements(Stellenbosch : Stellenbosch University, 2014-04) Nortje, Hester Maria; Van Heerden, J. D.; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Statistics and Actuarial Science.ENGLISH ABSTRACT: In this study Portfolio Opportunity Distributions (PODs) is applied as an alternative performance evaluation method. Traditionally, Broad-Market Indices or peer group comparisons are used to perform performance evaluation. These methods however have various biases and other problems related to its use. These biases and problems include composition bias, classification bias, concentration, etc. R.J. Surz (1994) introduced PODs in order to eliminate some of these problems. Each fund has its own opportunity set based on its style mandate and constraints. The style mandate of the fund is determined by calculating the fund’s exposure to the nine Surz Style Indices through the use of Returns-Based Style Analysis (RBSA). The indices are created based on the style proposed by R.J. Surz (1994). Some adjustments were made to incorporate the unique nature of the South African equity market. The combination of the fund’s exposures to the indices best explains the return that the fund generated. In this paper the fund’s constraints are based on the regulation requirements imposed on the funds in South Africa by the Collective Investment Schemes Control Act No. 45 of 2002 (CISCA). Thousands of random portfolios are then generated based on the fund’s opportunity set. The return and risk of the simulated portfolios represent the possible investment outcomes that the manager could have achieved given its opportunity set. Together the return and risk of the simulated portfolios represent a range of possible outcomes against which the performance of the fund is compared. It is also possible to determine the skill of the manager since it can be concluded that a manager who consistently outperforms most of the simulated portfolios shows skill in selecting shares to be included in the portfolio and assigning the correct weights to these shares. The South African Rand depreciated quite a bit during the period under evaluation and therefore funds invested large portions of their assets in foreign investments. These investments mostly yielded very high or very low returns compared to the returns available in the domestic equity market which impacted the application of PODs. Although the PODs methodology shows great potential, it is impossible to conclude with certainty whether the PODs methodology is superior to the traditional methods based on the current data.