How to Evaluate Fund Performance in Shifting Markets

Evaluating fund performance is one part quantitative, and an even larger part qualitative. Understanding the why behind fluctuating performance requires a holistic view of all the market factors that ultimately impact performance. 

This includes: what prevailing factors (positive and negative) are occurring in a particular industry that are the root cause for driving fluctuations? Perhaps there are recent regulatory statutes impacting an up-and-coming sector. Maybe an analyst downgraded a company in their latest research report. How does a target company stack up to its peers? What is an expert’s opinion on a target company’s viability? 

To keep up with the speed of the shifting market, asset managers rely on consolidated market intelligence to power 360 degree insights on how their portfolio is performing, in order to inform better investment decisions and pivot strategically. Comprehensive insights also enable managers to proactively, rather than reactively, monitor and adjust their positions.

Below, we explore how market intelligence platforms like AlphaSense help fund managers effectively and holistically understand the context of fund underperformance or overperformance and ultimately help drive better outcomes for their portfolios. 

The Quantitative Component

There are clear and definitive quantitative components that are integral to evaluating fund performance. Contingent on asset class, this can include assessment against a benchmark or index, metrics such as internal rate of return and multiple on invested capital for private equity funds. For hedge funds and equity strategies, this is measured through alpha, beta, Sharpe ratio and standard deviation. 

Understanding a fund’s historical performance is often a strong indicator of how it has fared in different market conditions. Consistently strong performance, especially during downturns, can indicate effective management and resilience.

Expense ratios also directly impact fund returns and play an important role in a quantitative assessment. The lower these are, the more capital remains invested and aggregating. Funds with high fees have a fundamentally higher threshold to outperform competitors by a substantial margin just to match their net returns.

While these measurements are critical for gauging the effectiveness of an investment strategy, they only address how results are achieved. To understand the why, we’ll dive into how market intelligence provides an all-encompassing view of the factors impacting performance. 

The Total Market Picture

During lingering periods of market fluctuation, understanding why fund performance is under or overperforming is critical in order to make portfolio adjustments and ensure long term growth and viability. Gaining a total market perspective is therefore essential to supplement quantitative measures and to drive informed and strategic decisions.

Qualitative market intelligence insights go beyond standard reporting to offer a multi-dimensional view into performance. These can include insights into industry trends, regulatory events, analyst reports, expert insights, and more. Market intelligence platforms like AlphaSense offer a one-stop shop, covering four key market perspectives that provide a complete picture of an investment landscape: that of the analyst, journalist/regulatory, company, and expert.

Industry Trends

Understanding the relevance of themes and events trending within an industry is critical to glean actionable insights and to gauge their impact on a broader scale. Pinpointing quick and accurate insights is key to gaining a first mover advantage and informing confident allocation adjustments within a portfolio.

Getting up to speed on the industry trends making the greatest impact on fund performance is seamless and quick with AlphaSense’s generative AI technology. Our Smart Summaries provide an inside glimpse into industry-wide trends and common themes across a particular sector and across key companies. 

By searching for a trending keyword in the AlphaSense platform— say, carbon energy, we can bring up a list of the most relevant companies trending with that search, as shown below. 

Hovering over any one of the companies will pull up their profile, from which we can click into Industry Summaries, which provide the most relevant trends across all companies with the same GICS classification, as well as top trending companies within the sector. 

We see from this particular search that electrolyzers are a top trending theme within the space. Additionally, this view provides a summary snapshot of the positives, negatives, and overall outlook for competitor companies within the sector, offering a quick view into trends and themes that may be more broadly shaping the industry and ultimately impacting fund performance. 

For example, more than one company faced challenges relating to high project costs, complex value chains, high interest rates, grid access, and permitting issues, among others. 

Key Expert Perspectives

Expert perspectives on target companies and broader sector analysis is another essential piece of the puzzle to understand fund performance. 

AlphaSense’s Expert Insights provide meaningful perspectives from former executives, customers, competitors, and channel participants across a range of industries. Their first-hand insights are unparalleled as they relate to competitive positioning, leadership styles, internal motivations and challenges, and other intangible factors that can potentially impact fund performance. 

For example, if we continue with the carbon energy search, we learn that a former Vice President of New Energy Solutions believes that in order to achieve a low-carbon economy, a focus on CCUS is key and can be a competitive differentiator: 

“Importantly, electrification is not enough to get us to where we want to be from a low-carbon economy and an environmental standpoint. Thereby, I think the general view which is adopted by many is that carbon capture, utilization, and storage, CCUS in short, is going to be a critical lever in the overall decarbonization story. Forecasts have indicated that anywhere between 5%-10% or more of the total carbon emissions that’s being emitted today could be reduced economically by the deployment of CCUS.”

– Former Vice President, New Energy Solutions | Expert Transcript

Portfolio managers can leverage these expert perspectives to assess how a target company stacks up against industry best practices and competitive differentiation, providing insights into growth potential and identifying areas of opportunity. 

Analyst Reports

Perhaps the most coveted qualitative insights, analyst research reports often contain invaluable nuggets of information that can sway market standing. An analyst upgrade or downgrade has the potential to initiate a tremendous trajectory in performance and can either reinforce or hinder a company’s reputation.

With AlphaSense’s Wall Street Insights®, you can peruse research reports from 1,500+ sources in seconds, including Goldman Sachs and Citi, to gain a deep understanding of the market landscape. By running a thematic search across all broker research in the AlphaSense platform, you can easily get a sense of analyst perspectives on a key topic, industry, or company.

Additionally, our aftermarket research provides valuable insights into metrics such as operational performance, market size, market share, profitability, growth rate and potential, and competitive position.

You can also glean broader, thematic level insights to get a sense of what Wall Street analysts are saying about an industry on the macro level.

Get the Full Picture with AlphaSense

Evaluating fund performance requires understanding how a strategy has performed over time. However, to gain a holistic, multidimensional picture, it’s equally important to understand why it has performed the way it did. 

Only AlphaSense compiles all the market perspectives you need to get the full picture with our industry leading, genAI-driven platform. Get up to speed on the themes, trends, and events that are impacting your portfolio so you can make smart, data-driven decisions with confidence. Access thousands of premium, public, private, and proprietary content sources—including broker research, company documents, expert calls, earnings call briefings, and more—in seconds.

Our cutting-edge features enable you to sift through the noise and accelerate your due diligence: 

• Smart Synonyms™ is the backbone of the AlphaSense search engine, expanding keyword and thematic searches beyond exact-match documents to include all relevant results and filtering out the noise
• Smart Summaries generates instant insights to reduce time spent on research during earnings season, quickly capturing company outlook, and generating an expert-approved SWOT analysis straight from former competitors, partners, and employees
• With our Company Topics module, you can instantly see the trending topics for a particular company from its most recent earnings documents. Further, you can filter by positive or negative sentiment to uncover what is driving positive or negative performance at the company level.
• Table Explorer eliminates the need to manually spread financials, automatically calculates key metrics, and enables you to instantly validate your numbers by viewing the original source of each number with a single click
• Enterprise Intelligence enables you to securely search, discover, and interrogate your proprietary internal content and a vast repository of 400M+ premium external documents

Simplify, streamline, and transform your workflow to leverage the insights and trends that matter. Start your free trial of AlphaSense today.

ABOUT THE AUTHOR

Barbara Tague
Content Marketing Manager

Barb is a Content Marketing Manager covering the financial services segment at AlphaSense. Previously, she managed the content program at a global financial services firm.

Read all posts written by Barbara Tague