Appraisal Ratio Performance Evaluation

Very Hard Performance Evaluation Performance Appraisal

Michael, a portfolio manager, is reviewing the performance of two different investment strategies he employed over the last year. Strategy A was a high-growth equity portfolio focusing on technology stocks, while Strategy B was a diversified allocation across various asset classes including bonds, real estate, and equities. Over the past year, Strategy A achieved a return of 22%, while Strategy B gained 10%.

At the same time, the benchmark index for Strategy A, which is the NASDAQ Composite Index, returned 19%, and the benchmark for Strategy B, a blended index of 60% stocks and 40% bonds, returned 8%. Michael aims to assess the skill exhibited in his strategies. He decides to utilize the appraisal ratio based on excess returns.

What is the BEST assessment of Michael's performance using the appraisal ratio for both strategies?

Strategy A has a higher appraisal ratio than Strategy B, indicating superior performance.

Strategy B has a higher appraisal ratio than Strategy A, indicating better risk-adjusted performance.

Both strategies produced the same appraisal ratios, suggesting equal performance.

Hint

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% Correct78%