Evaluating Fund Performance: Alpha vs. Other Metrics

Medium Performance Evaluation Performance Appraisal

Maria is a portfolio manager tasked with evaluating the performance of her equity investment fund over the past year. Her fund has consistently outperformed its benchmark, the S&P 500, which had an annual return of 10%. Upon reviewing her fund's performance, Maria notes that her fund generated a return of 15%, after fees, for the same period. To assess her performance effectively, Maria considers using different performance appraisal methods.

Which of the following statements regarding the evaluation of Maria’s fund performance is most accurate?

The Sharpe ratio is the best metric to use as it accounts for both return and volatility.

A benchmark-adjusted performance measure, such as alpha, is appropriate to assess the excess return against the S&P 500.

The information ratio should be used exclusively as it measures performance based on tracking error.

Hint

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