Gannon University Defined Contribution Plans

Transcription

1 Gannon University Defined Contribution Plans Mapping Recommendations February 4, 2014 Presented by Tom Coughlin (412)

2 Introduction The Pension Protection Act established mapping guidelines for 404 (c) protection, effective for plan years beginning after While we cannot provide legal advice, we believe that it is prudent to comply with the procedural aspects of new ERISA section 404(c)(4). Under this section, a qualified change in investment options", effective for plan years beginning after , requires: A participant's account is reallocated among one or more remaining or new investment options The characteristics of the remaining or new investment options, including characteristics relating to risk and rate of return, are reasonably similar to those of the replaced investment options Notice of the change is given, at least 30 days, but not more than 60 days, before the change, including information comparing the existing and new investment options and an explanation of the mapping In mapping assets, we recommend that you match up funds based on their return and risk profile (low, medium, high), market characteristics (U.S. equity, international equity, bonds, cash equivalents), market capitalization (small, mid, large) and investment style (growth, value, blend). To the extent possible, we recommend that all four criteria be considered in the decision. For example, in mapping assets from a moderate allocation or balanced fund that we would categorize as having medium risk, we suggest that the assets be placed in a comparable risk option. If only one such option existed, then the decision would be easy. It is important to note that the recommended fund may or may not out perform the old one, but it is the closest fit in terms of risk and market characteristics and keeps the participants asset allocation in line with where it was prior to the switch. For each Vendor we included a table that identifies the Vendor s funds and the recommended mapping funds. In some cases there was really only one comparable fund. In the cases where only one fund was available or the mapping was straight forward we included a brief one page summary with statistics. Where more explanation was needed we included more detail. 2

3 Introduction The old Fidelity and VALIC platforms had very few fund restrictions so the lineups were large and held many funds that do not have a comparable option in the new TIAA-CREF platform. In the old line-ups, participants had the ability for example to choose a fund specific to a single industry or sector like Health Care, Gold or Technology. At Buck we do not recommend this type of fund in a core line up due to its lack of diversity and increase market volatility. If a fund in the old line up did not have a close match we recommend defaulting the assets to the QDIA, which in this case is the age appropriate Target Date Fund. While not a perfect match from a style perspective, the QDIA provides the plan sponsor with fiduciary protection. In the cases where a fund had a simple mapping strategy due to an identical target year or in the case of a specific investment strategy like Real Estate or Socially Responsible funds where the option is a close match, we did not add much additional commentary. 3

4 Mapping Summary TIAA-CREF The TIAA mapping for straight forward with very few changes. Fund Name Morningstar Category Mapping Fund CREF Money Market Account Money Market/ Stable Value TIAA Stable Value CREF Bond Market Account Intermediate Bond Metropolitan West Total Return Bond CREF Inflation-Linked Bond Inflation Protected CREF Inflation-Linked Bond CREF Social Choice Account Moderate Allocation American Funds American Balanced CREF Equity Index Account Large Blend Vanguard 500 Index Admiral CREF Stock Large Blend CREF Stock CREF Growth Account Large Growth T. Rowe Price Blue Chip Growth Fund CREF Global Equities Account World Stock TIAA-CREF International Eq Index TIAA Real Estate Account Real Estate TIAA Real Estate TIAA-CREF Lifecycle Retirement Income Fund Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2010 Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2015 Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2020 Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2025 Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2030 Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2035 Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2040 Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2045 Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2050 Target Date Age Appropriate Target Date Fund TIAA-CREF Lifecycle 2055 Target Date Age Appropriate Target Date Fund 4

5 Intermediate Bond 5

6 Balanced 6

7 Large Cap Index 7

8 Large Growth 8

9 International/Global 9

10 Mapping Summary Fidelity Due to the large quantity of funds available in the Fidelity line up we added back up for most of our mapping decisions. If a fund in the current line up did not have a close match we used the age appropriate Target Date Fund as an alternative. While not a perfect match from a style perspective, the QDIA provides the plan sponsor with fiduciary protection. Fund Name Morningstar Category Mapping Fund FID US Govt Reserves Money Market TIAA Stable Value FID Cash reserve Money Market TIAA Stable Value FID SEL Money Market Money Market TIAA Stable Value FID Treasury only MM Money Market TIAA Stable Value FID Money Market Money Market TIAA Stable Value FID Retire Money Market Money Market TIAA Stable Value FID RET Govt Money Market Money Market TIAA Stable Value Fidelity Conservative Income Bond Ultra Short Bond TIAA Stable Value Fidelity Short-Term Bond Short Term Bond TIAA Stable Value Fidelity Corporate Bond Corporate Bond Metropolitan West Total Return Bond Fidelity GNMA Fund Intermediate Govt Metropolitan West Total Return Bond Fidelity Government Income Intermediate Govt Metropolitan West Total Return Bond Fidelity Intermediate Government Inc Intermediate Govt Metropolitan West Total Return Bond Fidelity Intermediate Bond Intermediate Bond Metropolitan West Total Return Bond Fidelity Investment Grade Bond Intermediate Bond Metropolitan West Total Return Bond Fidelity Total Bond Intermediate Bond Metropolitan West Total Return Bond Fidelity Spartan Interm Trs Bd Idx Advtg Intermediate Govt TIAA-CREF Bond Index Fidelity Spartan US Bond Idx Advtg Intermediate Bond TIAA-CREF Bond Index Fidelity Spartan L/T Tr Bd Idx Fid Advt Long Govt Age Appropriate Target Date Fund Fidelity Capital & Income High Yield Age Appropriate Target Date Fund Fidelity Convertible Securities Convertibles Age Appropriate Target Date Fund Fidelity Floating Rate High Income Floating rate Age Appropriate Target Date Fund Fidelity High Income High Yield Age Appropriate Target Date Fund Fidelity Strategic Income Multi-Sector Bond Age Appropriate Target Date Fund Fidelity New Markets Income Emerging Market Bond Templeton Global Bond 10

11 Mapping Summary Fidelity Fund Name Morningstar Category Mapping Fund Fidelity Strategic Real Return Inflation Protected Age Appropriate Target Date Fund Fidelity Inflation-Protected Bond Inflation Protected CREF Inflation-Linked Bond Fidelity Asset Manager 20% Conservative Allocation TRP Retirement Income Fidelity Asset Manager 30% Conservative Allocation TRP Retirement Income Fidelity Asset Manager 50% Moderate Allocation American Funds American Balanced Fidelity Asset Manager 60% Moderate Allocation American Funds American Balanced Fidelity Asset Manager 70% Moderate Allocation American Funds American Balanced Fidelity Balanced Moderate Allocation American Funds American Balanced Fidelity Puritan Moderate Allocation American Funds American Balanced Fidelity Blue Chip Value Large Value MFS Value R4 Fidelity Equity Dividend Income Large Value MFS Value R4 Fidelity Equity-Income Large Value MFS Value R4 Fidelity Large Cap Value Enhanced Index Large Value MFS Value R4 Fidelity Strategic Dividend & Income Large Value MFS Value R4 Fidelity Disciplined Equity Large Blend Vanguard 500 Index Signal Fidelity Dividend Growth Large Blend Vanguard 500 Index Signal Fidelity Large Cap Stock Large Blend Vanguard 500 Index Signal Fidelity Spartan 500 Index Advtg Large Blend Vanguard 500 Index Signal Fidelity Spartan Total Mkt Idx Advtg Large Blend Vanguard 500 Index Signal Fidelity Large Growth TRP Blue Chip Growth Fidelity Blue Chip Growth Large Growth TRP Blue Chip Growth Fidelity Capital Appreciation Large Growth TRP Blue Chip Growth Fidelity Contrafund Large Growth TRP Blue Chip Growth Fidelity Export & Multinational Large Growth TRP Blue Chip Growth Fidelity Fifty Large Growth TRP Blue Chip Growth Fidelity Focused Stock Large Growth TRP Blue Chip Growth Fidelity Growth Company Large Growth TRP Blue Chip Growth Fidelity Growth Discovery Large Growth TRP Blue Chip Growth Fidelity Independence Large Growth TRP Blue Chip Growth Fidelity New Millennium Large Growth TRP Blue Chip Growth Fidelity OTC Large Growth TRP Blue Chip Growth 11

12 Mapping Summary Fidelity Fund Name Morningstar Category Mapping Fund Fidelity Mid Cap Value Mid Value Columbia Mid Cap Index R5 Fidelity Value Mid Value Columbia Mid Cap Index R5 Fidelity Leveraged Company Stock Mid Blend Columbia Mid Cap Index R5 Fidelity Low-Priced Stock Mid Blend Columbia Mid Cap Index R5 Fidelity Spartan Extnd Mkt Idx Advtg Mid Blend Columbia Mid Cap Index R5 Fidelity Value Strategies Mid Blend Columbia Mid Cap Index R5 Fidelity Growth Strategies Mid Growth Columbia Mid Cap Index R5 Fidelity Mid-Cap Stock Mid Growth Columbia Mid Cap Index R5 Fidelity Stock Selector Mid Cp Mid Growth Columbia Mid Cap Index R5 Fidelity Small Cap Value Small Value DFA US Targeted Value R2 Fidelity Small Cap Discovery Small Blend Columbia Small Cap Index R5 Fidelity Small Cap Stock Small Blend Columbia Small Cap Index R5 Fidelity Stock Selector Sm Cp Small Blend Columbia Small Cap Index R5 Fidelity Small Cap Growth Small Growth Columbia Small Cap Index R5 Fidelity Diversified International Foreign Large Blend Harbor International Adm Fidelity Overseas Foreign Large Blend Harbor International Adm Fidelity Spartan Intl Idx Advtg Foreign Large Blend Harbor International Adm Fidelity International Capital Apprec Foreign Large Growth Harbor International Adm Fidelity International Growth Foreign Large Growth Harbor International Adm Fidelity International Small Cap Foreign Sm/Mid Growth Harbor International Adm Fidelity Worldwide World Stock Harbor International Adm Fidelity China Region China Region Age Appropriate Target Date Fund Fidelity Emerg Mkts Discv Diversified Emerging Mkts Age Appropriate Target Date Fund Fidelity Emerging Markets Diversified Emerging Mkts Age Appropriate Target Date Fund Fidelity Spartan EMkts Idx Advtg Diversified Emerging Mkts Age Appropriate Target Date Fund Fidelity Pacific Basin Pacific/Asia Age Appropriate Target Date Fund Fidelity Europe Europe Stock Age Appropriate Target Date Fund Fidelity Japan Japan Stock Age Appropriate Target Date Fund Fidelity Latin America Latin America Stock Age Appropriate Target Date Fund Fidelity Canada Miscellaneous Region Age Appropriate Target Date Fund Fidelity Nordic Miscellaneous Region Age Appropriate Target Date Fund Fidelity Emerging Asia Pacific/Asia ex Japan Age Appropriate Target Date Fund 12

13 Mapping Summary Fidelity Fund Name Morningstar Category Mapping Fund Fidelity Real Estate Income Real Estate TIAA Real Estate Fidelity Spartan Real Estate Idx Advtg Real Estate TIAA Real Estate Fidelity Freedom Income Target Date Age Appropriate Target Date Fund Fidelity Freedom 2000 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2005 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2010 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2015 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2020 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2025 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2030 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2035 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2040 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2045 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2050 Target Date Age Appropriate Target Date Fund Fidelity Freedom 2055 Target Date Age Appropriate Target Date Fund 13

14 Mapping Summary Fidelity Fund Name Morningstar Category Mapping Fund Fidelity Global Cmdty Stk Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Banking Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Biotechnology Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Chemicals Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Communications Equip Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Computers Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Consumer Discretionary Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Consumer Staples Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Defense & Aerospace Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Energy Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Energy Service Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Health Care Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Industrials Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Insurance Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select IT Services Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Leisure Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Medical Delivery Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Natural Gas Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Natural Resources Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Pharmaceuticals Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Retailing Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Software & Comp Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Technology Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Telecommunications Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Transportation Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Utilities Portfolio Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Electronics Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Gold Specialty - Sector Fund Age Appropriate Target Date Fund Fidelity Select Materials Specialty - Sector Fund Age Appropriate Target Date Fund 14

15 Intermediate Bond 15

16 Intermediate Bond 16

17 Bond Index 17

18 Inflation Protected Bond 18

19 Foreign Bond 19

20 Balanced 20

21 Balanced 21

22 Large Value 22

23 Large Cap Index 23

24 Large Blend 24

25 Large Growth 25

26 Large Growth 26

27 Mid Cap 27

28 Mid Cap 28

29 Small Cap Value 29

30 Small Cap 30

31 International/Global 31

32 International/Global 32

33 International/Global 33

34 Sector Funds 34

35 Sector Funds 35

36 Sector Funds 36

37 Sector Funds 37

38 Mapping Summary VALIC Due to the large quantity of funds available in the VALIC line up we added back up for most of our mapping decisions. If a fund in the current line up did not have a close match we used the age appropriate Target Date Fund as an alternative. While not a perfect match from a style perspective, the QDIA provides the plan sponsor with fiduciary protection. Fund Name Morningstar Category Mapping Fund VALIC Company I Money Market I Money Market TIAA Stable Value VALIC Company II Money Market II Money Market TIAA Stable Value VALIC Company I Capital Conservation Intermediate-Term Bond Metropolitan West Total Return Bond VALIC Company II Core Bond Intermediate-Term Bond Metropolitan West Total Return Bond VALIC Company I Government Securities Intermediate Govt Bond Metropolitan West Total Return Bond VALIC Company II Strategic Bond Multi-Sector Bond Metropolitan West Total Return Bond VALIC Company II High Yield Bond High Yield Age Appropriate Target Date Fund Vanguard Long-Term Treasury Inv LT Treasury Age Appropriate Target Date Fund Vanguard Long-Term Investment-Grade Inv Long - Term Bond Age Appropriate Target Date Fund VALIC Company I Inflation Protected Inflation Protected Bond CREF Inflation Linked Bond VALIC Company I International Govt Bond Global Bond Templeton Global Bond VALIC Company II Cnsrv Gr Lifestyle Conservative Allocation TRP Retirement Income Vanguard LifeStrategy Cnsrv Gr Inv Conservative Allocation TRP Retirement Income Vanguard Wellington Inv Moderate Allocation American Funds American Balanced VALIC Company I Asset Allocation Moderate Allocation American Funds American Balanced VALIC Company II Moderate Gr Lifestyle Moderate Allocation American Funds American Balanced Vanguard LifeStrategy Moderate Gr Inv Moderate Allocation American Funds American Balanced SunAmerica 2015 High Watermark A Target Year Age Appropriate Target Date Fund SunAmerica 2020 High Watermark A Target Year Age Appropriate Target Date Fund Vanguard LifeStrategy Growth Inv Aggressive Allocation Age Appropriate Target Date Fund VALIC Company II Agrsv Growth Lifestyle Aggressive Allocation Age Appropriate Target Date Fund 38

39 Mapping Summary VALIC Fund Name Morningstar Category Mapping Fund VALIC Company I Broad Cap Value Income Large Blend MFS Value R4 VALIC Company I Core Equity Large Value MFS Value R4 VALIC Company I Dividend Value Large Value MFS Value R4 VALIC Company II Large Cap Value Large Value MFS Value R4 VALIC Company I Value Large Value MFS Value R4 Vanguard Windsor II Inv Large Value MFS Value R4 VALIC Company I Growth & Income Large Blend Vanguard 500 Index Signal VALIC Company I Large Cap Core Large Blend Vanguard 500 Index Signal VALIC Company I Stock Index Large Blend Vanguard 500 Index Signal VALIC Company II Socially Responsible Large Blend TIAA-CREF Social Choice Eq Retire VALIC Company I Global Social Awareness World Stock TIAA-CREF Social Choice Eq Retire American Beacon Holland Lg Cap Gr Inv Large Growth TRP Blue Chip Growth VALIC Company I Blue Chip Growth Large Growth TRP Blue Chip Growth VALIC Company II Capital Appreciation Large Growth TRP Blue Chip Growth VALIC Company I Growth Large Growth TRP Blue Chip Growth VALIC Company I Large Capital Growth Large Growth TRP Blue Chip Growth VALIC Company I NASDAQ-100 Index Large Growth TRP Blue Chip Growth 39

40 Mapping Summary VALIC Fund Name Morningstar Category Mapping Fund Ariel Appreciation Investor Mid Cap Value Columbia Mid Cap Index R5 Ariel Investor Mid Cap Blend Columbia Mid Cap Index R5 VALIC Company II Mid Cap Value Mid Cap Value Columbia Mid Cap Index R5 VALIC Company II Mid Cap Growth Mid Cap Blend Columbia Mid Cap Index R5 VALIC Company I Mid Cap Index Mid Cap Blend Columbia Mid Cap Index R5 VALIC Company I Mid Cap Strategic Gr Mid Cap Growth Columbia Mid Cap Index R5 VALIC Company I Small Cap Special Val Small Value DFA US Targeted Value R2 VALIC Company II Small Cap Value Small Value DFA US Targeted Value R2 VALIC Company I Small Cap Small Blend Columbia Small Cap Index R5 VALIC Company I Small Cap Index Small Blend Columbia Small Cap Index R5 VALIC Company I Small-Mid Growth Mid Cap Blend Columbia Small Cap Index R5 VALIC Company I Small Cap Agrsv Gr Small Growth Columbia Small Cap Index R5 VALIC Company II Small Cap Growth Small Growth Columbia Small Cap Index R5 VALIC Company I Foreign Value Foreign Large Value Harbor International Adm VALIC Company I International Equities Foreign Large Blend Harbor International Adm VALIC Company I International Growth Foreign Large Growth Harbor International Adm VALIC Company II International Opps Foreign Large Blend Harbor International Adm VALIC Company I Global Strategy World Stock Harbor International Adm VALIC Company I Emerg Economies Emerging Markets Age Appropriate Target Date Fund VALIC Company I Global Real Estate Global Real Estate TIAA Real Estate VALIC Company I Health Sciences Sector Fund Age Appropriate Target Date Fund VALIC Company I Science & Technology Sector Fund Age Appropriate Target Date Fund Invesco Balanced-Risk Cmdty Strat R5 Sector Fund Age Appropriate Target Date Fund 40

41 Intermediate Bond 41

42 Other Bond Funds 42

43 Inflation Protected Bond 43

44 Foreign Bond 44

45 Balanced 45

46 Balanced 46

47 Balanced 47

48 Large Value 48

49 Large Cap Index 49

50 Large Blend 50

51 Large Growth 51

52 Mid Cap 52

53 Small Cap Value 53

54 Small Cap 54

55 International/Global 55

56 International/Global 56

57 Sector Funds 57

58 Definitions Alpha - A measure of the difference between a portfolio s actual returns and its expected performance, given its level of risk as measured by beta. It is a measure of the portfolio s historical returns not explained by movements of the index. A positive (negative) alpha indicates the portfolio has performed better (worse) than it s beta would predict. Batting Average - The ratio between the number of periods where the manager outperforms the benchmark and the total number of periods. Beta - A measure of the sensitivity of a portfolio to movements in the market. It is a measure of a portfolio s non-diversifiable risk or systematic risk. The beta of a benchmark is 1. Portfolios are thought of as more risky than the market if their beta is larger than 1 and less risky if their beta is smaller than 1. Beta is a statistical estimate of the average change in rate of return corresponding to a 1% change in the market. Correlation - A measure of the interdependence of performance for two products, or for a product and a index. A correlation ranges between +1 and -1. The closer to +1, the more closely the performance of a product resembles that of the index. The higher the correlation to the index, the more meaningful the alpha and beta becomes. A low correlation between two funds is valuable because the overall standard deviation of a portfolio of funds can be reduced. Downside Risk May also see this referred to as downside or semi-standard deviation. Essentially, it represents the standard deviation of all returns falling below the mean. The semi-variance of the returns below the mean (to the left of the distribution) is calculated. The semistandard deviation is the square root of the semi-variance. The downside risk shows the average size of the deviations from the mean when the return is negative. Excess Return - The incremental return earned by a portfolio relative to its benchmark index. The excess return in this report is calculated using quarterly data. The average quarterly excess over any time period multiplied by the number of measurement periods in one year (4 in this case) provides the average annual excess generated by the portfolio. The higher the number, the better. Information ratio - A similar measure to the Sharpe ratio, but it focuses on the relative rate of return per one relative unit of risk (where Sharpe ratio focuses on the absolute). It is measured by dividing excess return by tracking error. The higher the information ratio, the more value added a manager has contributed to the portfolio s performance. R-Squared - The square of the correlation. The percentage of a product portfolio s performance explained by the behavior of the assigned index. The higher the percentage, the closer the correlation of the product s performance pattern to that of the index and alpha and beta factors become more significant. Return Based Style Map - The Manager Style Graph creates a map using the Style Basis as the coordinates. The managers are placed on the map as a visual representation of the style of the manager. It shows the best combination of indices that explain a portfolio s return. This mix minimizes the difference between the return on the fund and that of a passive portfolio of indices. The data points for each manager get larger over time, allowing you to evaluate the consistency of a manager s style and to track changes in style. 58

59 Definitions Rolling Excess Return/Excess Risk - The Annualized Excess Return/Excess Standard Deviation graph provides a visual analysis of the consistency of excess returns. The Annualized Excess Return over the market benchmark is plotted on the vertical axis and the standard deviation of excess return (tracking error) is plotted on the horizontal axis. These are the components of the Information Ratio, a risk-adjusted measure of performance that is very useful for comparing managers. This graph gives a quick visual of a manager's consistency. A tight grouping of symbols indicates the manager has achieved consistent excess returns versus their benchmark. When comparing managers, up and/or to the left is better. Sharpe Ratio The Sharpe Ratio, developed by Professor William F. Sharpe, is a measure of reward per unit of risk - the higher the Sharpe Ratio, the better. It is a portfolio's excess return over the risk-free rate divided by the portfolio's standard deviation. The portfolio's excess return is its geometric mean return minus the geometric mean return of the risk-free instrument (by default, t-bills). Significance Level - The significance level is a confidence measurement based on the consistency of the information ratio and the time over which it was achieved (a modified P-value). This measurement ranges from 50% (chance) to 100%. A manager with consistent under or over performance compared to their benchmark, over a long period of time, would have a high significance level. The significance level of a manager series vs. a benchmark series indicates the level of confidence with which the statement "the manager's annualized excess return over the benchmark is positive" or "the manager's annualized excess return over the benchmark is negative," as the case may be, holds true. The significance level is calculated from the T-Statistic using a numerical approximation known as the incomplete beta function. Sortino Ratio - An analog to the Sharpe Ratio, with the standard deviation replaced by the downside deviation. Accordingly, there are two versions: one uses the downside deviation with a constant minimum acceptable return (MAR), the other uses the downside deviation with cash as the MAR. Standard deviation - A statistical measure of the range of a portfolio s performance, the variability of a return around its average return over a specified time period. Approximately 68% of the time, returns of a portfolio are expected to differ from its mean return by no more than plus or minus the standard deviation figure. Tracking error - A measure of the standard deviation of a portfolio s performance relative to the performance of an appropriate benchmark. Tracking error calculates the standard deviation of the excess returns. T-Statistic The t-statistic is related to the information ratio and tells how significant the information ratio is. It takes into account the time over which the information ratio was achieved. Generally, a t-statistic of 2.0 or greater is considered significant. The t-statistic of a manager series vs. a benchmark series is the information ratio multiplied by the square root of the number of periods in a year. The T-Statistic is used to calculate the significance level. 59