Stock Analysis Pic C

Invesco: A Deeper Look At the Performance

Stock Analysis Pic C

To many investors, Atlanta-based Invesco Ltd. is an investment management conglomerate with a history of acquisitions and multi-asset platforms that spans the globe. With more than $1.18 trillion in assets under management,1 it's involved in everything from mutual funds and exchange-traded funds to private placements, separately managed accounts, variable insurance funds and a myriad of alternative investment strategies. 

Indeed, this firm's history traces its roots to banking. It has also been active in growing through acquistions of other major fund competitors such as the former AIM Investments (1997) and one of the largest players in exchange-traded funds, PowerShares (2006). In May of 2019, it completed the acquisition of OppenheimerFunds, which added $224.4 billion in assets under management. 

With 8,000-plus employees in 25 countries, Invesco ranks as the seventh-largest U.S. retail asset manager, according to Morningstar. (The independent funds research firm estimates that Invesco is the 13th biggest global asset manager.) The company's stock trades on the New York Stock Exchange (TICKER: IVZ).

Without knowing anything in particular about the firm, these general descriptions indicate a company that's valuable in terms of the solutions and services it offers. Why would you think differently?

One major red flag is how investors have voted with their feet, so to speak. In the 12 months through September, Invesco's mutual funds had $54 billion of net outflow, per Morningstar data. The Financial Times reported such negative investment represented the biggest mass exodus over that timeframe in the industry. Its outflow during this period handily topped the "next worst-selling managers," the FT noted -- Natixis of France ($40 billion) and Franklin Templeton of the U.S. ($32 billion).2

In fact, the FT's article pointed out that Invesco's open-end mutual funds and money market funds through Q3 had generated net outflow in 16 of the past 20 financial quarters.

Besides such negative headwinds, Invesco's bleeding of assets comes amid a growing body of independent third-party research calling into question the wisdom of trying to actively identify mispriced securities in relatively concentrated portfolios. This evidence is building on decades of work by top-drawer academics ranging from Nobel Laureates Eugene Fama and Harry Markowitz to William Sharpe and Myron Scholes, to name just a few. 

At the same time, we've been undertaking our own studies to dig into the historical performance of active management. In this installment of IFA's ongoing Deeper Look series, we're putting under our microscope the investment strategies run by Invesco's mutual fund managers. (We've also analyzed this company's RAFI family of alternative ETFs, which is named after index methodologies developed by Rob Arnott's Research Affiliates -- commonly known by its RAFI acronym. You can click here to find our Deeper Look on this part of the Invesco lineup.) 

Along with independent analysis by leading academics, our own research leads IFA's investment committee to an overarching conclusion about stock and bond jockeys: On the whole, active fund managers have failed to deliver on the value proposition they profess, which is to reliably outperform a risk-comparable benchmark.

Controlling for Survivorship Bias

It's important for investors to understand the idea of survivorship bias. While there are 132 strategies that are currently offered by Invesco, it doesn't necessarily mean that these are the only strategies that this company has ever managed. In fact, there are 139 funds that no longer exist. This can be for a variety of reasons including poor performance or the fact that they were merged with another fund. We will show what their aggregate performance looks like shortly.

Fees & Expenses

Let's first examine the costs associated with Invesco's surviving 132 strategies. It should go without saying that if investors are paying a premium for investment "expertise," then they should be receiving above average results consistently over time. The alternative would be to simply accept a market's return, less a significantly lower fee, via an index fund.

The costs we examine include expense ratios, front end (A), deferred (B) and level (C) loads, as well as 12b-1 fees. These are considered the "hard" costs that investors incur. Prospectuses, however, do not reflect the trading costs associated with mutual funds.

Commissions and market impact costs are real expenses associated with implementing a particular investment strategy and can vary depending on the frequency and size of the trades executed by portfolio managers.

We can estimate the costs associated with an investment strategy by looking at its annual turnover ratio. For example, a turnover ratio of 100% means that the portfolio manager turns over the entire portfolio in one year. This is considered an active approach and investors holding these funds in taxable accounts will likely incur a higher exposure to tax liabilities, such as short- and long-term capital gains distributions, than those incurred by passively managed funds.

The table below details the hard costs as well as the turnover ratio for all 132 surviving active funds offered by Invesco that have at least three years of complete performance history. You can search this page for a symbol or name by using Control F in Windows or Command F on a Mac. Then click the link to see the Alpha Chart. Also, remember that this is what is considered an in-sample test; the next level of analysis is to do an out-of-sample test (for more information see here).

Fund Name Ticker Turnover Ratio % Prospectus Net Expense Ratio 12b-1 Fee Deferred Load Max Front Load Global Category
Invesco Oppenheimer Global High Yield R6 OGYIX 56.00 0.80 -- -- -- Global Fixed Income
Invesco Multi-Asset Income Y PIYFX 59.00 0.61 -- -- -- Cautious Allocation
Invesco Global Opportunities R5 IIOPX 92.00 0.77 -- -- -- Global Equity Large Cap
Invesco Select Opportunities R5 IZSIX 23.00 0.78 -- -- -- Global Equity Mid/Small Cap
Invesco Macro Allocation Strategy Y GMSHX 94.00 1.22 -- -- -- Moderate Allocation
Invesco Oppenheimer MainStrt SmCp R6 OSSIX 46.00 0.77 -- -- -- US Equity Small Cap
Invesco Oppenheimer Senior Fl Rt PlsR6 OSFIX 1.00 1.28 -- -- -- US Fixed Income
Invesco Low Volatility Emerging Mkts Y LVLYX 61.00 1.08 -- -- -- Global Emerging Markets Equity
Invesco Long/Short Equity Y LSQYX 92.00 1.32 -- -- -- Long/Short Equity
Invesco Global Targeted Returns Y GLTYX 67.00 1.19 -- -- -- Global Macro
Invesco Global Market Neutral Y MKNYX 64.00 1.25 -- -- -- Market Neutral
Invesco All Cap Market Neutral Y CPNYX 125.00 1.26 -- -- -- Market Neutral
Invesco Comstock A ACSTX 23.00 0.81 0.25 -- 5.50 US Equity Large Cap Value
Invesco Corporate Bond A ACCBX 145.00 0.83 0.25 -- 4.25 US Fixed Income
Invesco Exchange ACEHX 0.00 0.54 -- -- -- US Equity Large Cap Value
Invesco High Yield Municipal A ACTHX 24.00 1.22 0.25 -- 4.25 US Municipal Fixed Income
Invesco American Value A MSAVX 38.00 1.19 0.25 -- 5.50 US Equity Mid Cap
Invesco Charter A CHTRX 46.00 1.08 0.25 -- 5.50 US Equity Large Cap Blend
Invesco Limited Term Municipal Income A2 AITFX 45.00 0.38   -- 1.00 US Municipal Fixed Income
Invesco Income A AGOVX 119.00 1.08 0.25 -- 4.25 US Fixed Income
Invesco High Yield A AMHYX 34.00 1.17 0.25 -- 4.25 US Fixed Income
Invesco Small Cap Growth A GTSAX 21.00 1.18 0.25 -- 5.50 US Equity Small Cap
Invesco Oppenheimer Value A CGRWX 45.00 0.92 0.25 -- 5.50 US Equity Large Cap Value
Invesco International Growth A AIIEX 26.00 1.31 0.25 -- 5.50 Global Equity Large Cap
Invesco Mid Cap Growth A VGRAX 53.00 1.16 0.25 -- 5.50 US Equity Mid Cap
Invesco Global Growth A AGGAX 32.00 1.23 0.25 -- 5.50 Global Equity Large Cap
Invesco CA Tax-Free Income Y CLFDX 17.00 1.03 -- -- -- US Municipal Fixed Income
Invesco Convertible Securities Y CNSDX 62.00 0.67 -- -- -- Convertibles
Invesco Pacific Growth Y TGRDX 54.00 1.30 -- -- -- Asia Equity
Invesco Energy Inv FSTEX 17.00 1.32 0.25 -- -- Energy Sector Equity
Invesco Dividend Income Investor FSTUX 4.00 1.07 0.25 -- -- US Equity Large Cap Value
Invesco Gold & Precious Metals Invstor FGLDX 16.00 1.49 0.25 -- -- Precious Metals Sector Equity
Invesco Technology Investor FTCHX 48.00 1.11 0.13 -- -- Technology Sector Equity
Invesco Oppenheimer Ltd-Term Govt A OPGVX 75.00 0.78 0.25 -- 2.25 US Fixed Income
Invesco Oppenheimer Rcst Shrt DurHYMuniA OPITX 19.00 1.15 0.25 -- 2.50 US Municipal Fixed Income
Invesco Global Small & Mid Cap Gr A AGAAX 33.00 1.36 0.25 -- 5.50 Global Equity Mid/Small Cap
Invesco Growth and Income A ACGIX 23.00 0.80 0.25 -- 5.50 US Equity Large Cap Value
Invesco Health Care A GGHCX 36.00 1.10 0.25 -- 5.50 Healthcare Sector Equity
Invesco Short Duration Inflation Prot R5 ALMIX 37.00 0.28 -- -- -- US Fixed Income
Invesco Real Estate C IARCX 47.00 2.02 1.00 1.00 -- Real Estate Sector Equity
Invesco Oppenheimer Main Street A MSIGX 49.00 0.87 0.25 -- 5.50 US Equity Large Cap Blend
Invesco Oppenheimer Total Return Bond A OPIGX 64.00 0.75 0.25 -- 5.50 US Fixed Income
Invesco Intermediate Term Muni Inc A VKLMX 27.00 0.88 0.25 -- 2.50 US Municipal Fixed Income
Invesco OppenheimerRchCaMncpl A OPCAX 37.00 1.03 0.25 -- 4.25 US Municipal Fixed Income
Invesco Oppenheimer Global A OPPAX 14.00 1.08 0.25 -- 5.50 Global Equity Large Cap
Invesco Oppenheimer Global Opports A OPGIX 21.00 1.10 0.25 -- 5.50 Global Equity Mid/Small Cap
Invesco Oppenheimer Capital Income A OPPEX 147.00 0.95 0.25 -- 5.50 Cautious Allocation
Invesco Oppenheimer Gold & Spec Mnrl A OPGSX 35.00 1.17 0.25 -- 5.50 Precious Metals Sector Equity
Invesco OppenheimerRchst AMT-FrNY MncplA OPNYX 15.00 1.19 0.25 -- 4.25 US Municipal Fixed Income
Invesco Oppenheimer Discovery A OPOCX 83.00 1.08 0.25 -- 5.50 US Equity Small Cap
Invesco Oppenheimer Rcst PA Municipal A OPATX 21.00 1.16 0.25 -- 4.25 US Municipal Fixed Income
Invesco Oppenheimer Capital Apprec A OPTFX 64.00 1.03 0.25 -- 5.50 US Equity Large Cap Growth
Invesco OppenheimerRchst AMT-Fr Mncpl A OPTAX 27.00 1.00 0.25 -- 4.25 US Municipal Fixed Income
Invesco Oppenheimer Global Strat Inc A OPSIX 67.00 0.99 0.25 -- 4.25 US Fixed Income
Invesco Oppenheimer Ltd-Term Bd A OUSGX 57.00 0.75 0.25 -- 2.25 US Fixed Income
Invesco Equity and Income A ACEIX 138.00 0.78 0.25 -- 5.50 Moderate Allocation
Invesco Oppenheimer Global Allocation A QVGIX 151.00 1.29 0.25 -- 5.50 Moderate Allocation
Invesco Oppenheimer Fundamental Alts A QVOPX 155.00 1.97 0.25 -- 5.50 Multialternative
Invesco Oppenheimer Rising Dividends A OARDX 58.00 1.02 0.25 -- 5.50 US Equity Large Cap Blend
Invesco Oppenheimer International Eq A QIVAX 85.00 1.23 0.25 -- 5.50 Global Equity Large Cap
Invesco Oppenheimer Mid Cap Value A QVSCX 71.00 1.16 0.25 -- 5.50 US Equity Mid Cap
Invesco Oppenheimer RchsLitdTmNY Mncpl A LTNYX 36.00 1.00 0.25 -- 2.50 US Municipal Fixed Income
Invesco Oppenheimer Rcst Fd Muncpl A RMUNX 26.00 1.18 0.25 -- 4.25 US Municipal Fixed Income
Invesco Oppenheimer International Bd A OIBAX 115.00 0.90 0.25 -- 4.25 Global Fixed Income
Invesco Oppenheimer Rchst HYMncpl A ORNAX 34.00 1.02 0.25 -- 4.25 US Municipal Fixed Income
Invesco Oppenheimer Rcst NJ Municipal A ONJAX 17.00 1.20 0.25 -- 4.25 US Municipal Fixed Income
Invesco Technology Sector Y IFODX 44.00 1.03 -- -- -- Technology Sector Equity
Invesco Summit P SMMIX 35.00 0.87 0.10 -- -- US Equity Large Cap Growth
Invesco New York Tax Free Income A VNYAX 6.00 1.21 0.25 -- 4.25 US Municipal Fixed Income
Invesco Quality Income A VKMGX 416.00 0.94 0.24 -- 4.25 US Fixed Income
Invesco PA Tax Free Income A VKMPX 11.00 1.36 0.25 -- 4.25 US Municipal Fixed Income
Invesco Municipal Income A VKMMX 27.00 1.01 0.25 -- 4.25 US Municipal Fixed Income
Invesco Oppenheimer Equity Income A OAEIX 104.00 1.00 0.25 -- 5.50 US Equity Large Cap Value
Invesco Small CapValue A VSCAX 43.00 1.12 0.25 -- 5.50 US Equity Small Cap
Invesco Intl Core Equity Investor IIBCX 73.00 1.12 0.25 -- -- Global Equity Large Cap
Invesco European Small Company A ESMAX 11.00 1.39 0.25 -- 5.50 Europe Equity Large Cap
Invesco Developing Markets A GTDDX 20.00 1.41 0.25 -- 5.50 Global Emerging Markets Equity
Invesco Oppenheimer Developing Markets A ODMAX 28.00 1.26 0.25 -- 5.50 Global Emerging Markets Equity
Invesco Small Cap Equity A SMEAX 22.00 1.28 0.25 -- 5.50 US Equity Small Cap
Invesco European Growth A AEDAX 16.00 1.36 0.25 -- 5.50 Europe Equity Large Cap
Invesco Asia Pacific Growth A ASIAX 21.00 1.46 0.25 -- 5.50 Asia ex-Japan Equity
Invesco Global Low Volatility Eq Yld A GTNDX 111.00 1.59 0.25 -- 5.50 Global Equity Mid/Small Cap
Invesco Floating Rate A AFRAX 55.00 1.08 0.25 -- 2.50 US Fixed Income
Invesco Oppenheimer MainStrt MdCp Y OPMYX 59.00 0.84 -- -- -- US Equity Mid Cap
Invesco Oppenheimer Senior Fl RateA OOSAX 1.00 1.12 0.25 -- 3.25 US Fixed Income
Invesco International Small Company A IEGAX 15.00 1.57 0.25 -- 5.50 Global Equity Mid/Small Cap
Invesco Oppenheimer Intl Sml-Mid Com A OSMAX 28.00 1.32 0.25 -- 5.50 Global Equity Mid/Small Cap
Invesco Oppenheimer International Gr A OIGAX 18.00 1.10 0.25 -- 5.50 Global Equity Large Cap
Invesco Oppenheimer MainStrtAllCap Y OMSYX 48.00 0.87 -- -- -- US Equity Large Cap Blend
Invesco Oppenheimer Discv Mid Cap Gr Y OEGYX 108.00 0.87 -- -- -- US Equity Mid Cap
Invesco Mid Cap Core Equity A GTAGX 29.00 1.24 0.25 -- 5.50 US Equity Mid Cap
Invesco Small Cap Discovery A VASCX 74.00 1.37 0.25 -- 5.50 US Equity Small Cap
Invesco Global Core Equity A AWSAX 30.00 1.22 0.25 -- 5.50 Global Equity Large Cap
Invesco Value Opportunities A VVOAX 51.00 1.22 0.25 -- 5.50 US Equity Large Cap Value
Invesco Diversified Dividend A LCEAX 10.00 0.81 0.25 -- 5.50 US Equity Large Cap Value
Invesco Short Term Bond C STBCX 176.00 1.00 0.65 -- -- US Fixed Income
Invesco Endeavor A ATDAX 34.00 1.34 0.25 -- 5.50 US Equity Mid Cap
Invesco Select Companies A ATIAX 12.00 1.25 0.25 -- 5.50 US Equity Small Cap
Invesco Oppenheimer Real Estate A OREAX 72.00 1.34 0.25 -- 5.50 Real Estate Sector Equity
Invesco Growth Allocation R5 AADIX 16.00 0.71 -- -- -- Aggressive Allocation
Invesco Moderate Allocation R5 AMLIX 20.00 0.72 -- -- -- Moderate Allocation
Invesco OppenheimerRchsLitdTm CA Mncpl A OLCAX 36.00 0.94 0.25 -- 2.50 US Municipal Fixed Income
Invesco Oppenheimer Dividend Opp A OSVAX 51.00 1.14 0.25 -- 5.50 US Equity Large Cap Value
Invesco Conservative Allocation R5 CMAIX 23.00 0.74 -- -- -- Cautious Allocation
Invesco Global Real Estate R5 IGREX 47.00 0.92 -- -- -- Real Estate Sector Equity
Invesco Oppenheimer Ptf Ser: Cnsv Inv Y OYCIX 5.00 0.70 -- -- -- Cautious Allocation
Invesco Oppenheimer Ptf Ser: Mod Inv Y OYMIX 40.00 0.74 -- -- -- Moderate Allocation
Invesco Oppenheimer Ptf Ser: Act Allo Y OAAYX 38.00 0.91 -- -- -- Aggressive Allocation
Invesco Oppenheimer Ptf Ser: Gr Inv Y OYAIX 38.00 0.91 -- -- -- Aggressive Allocation
Invesco American Franchise Y VAFIX 43.00 0.76 -- -- -- US Equity Large Cap Growth
Invesco International Allocation R5 INAIX 10.00 1.01 -- -- -- Global Equity Large Cap
Invesco Income Allocation R5 ILAAX 20.00 0.56 -- -- -- Cautious Allocation
Invesco Oppenheimer Intl Dvrs Y OIDYX 7.00 0.99 -- -- -- Global Equity Large Cap
Invesco Low Volatility Equity Yield R5 SCIUX 117.00 0.79 -- -- -- US Equity Large Cap Value
Invesco World Bond R5 AUBIX 131.00 0.69 -- -- -- Global Fixed Income
Invesco Greater China R5 IACFX 45.00 1.40 -- -- -- Greater China Equity
Invesco Oppenheimer Municipal A OPAMX 79.00 0.90 0.25 -- 4.25 US Municipal Fixed Income
Invesco Global Real Estate Income A ASRAX 41.00 1.25 0.25 -- 5.50 Real Estate Sector Equity
Invesco Oppenheimer Global Focus Y GLVYX 46.00 1.02 -- -- -- Global Equity Large Cap
Invesco Oppenheimer Shrt Tm Municipal Y ORSYX 13.00 0.60 -- -- -- US Municipal Fixed Income
Invesco Oppenheimer Itmt Trm Muncpl Y ORRYX 45.00 0.85 -- -- -- US Municipal Fixed Income
Invesco Balanced-Risk Allc Y ABRYX 116.00 1.06 -- -- -- Flexible Allocation
Invesco Core Plus Bond Y CPBYX 250.00 0.51 -- -- -- US Fixed Income
Invesco Oppenheimer Intermediate Inc Y OFIYX 6.00 0.45 -- -- -- US Fixed Income
Invesco Opp SteelPath MLP Select 40 Y MLPTX 24.00 0.87 -- -- -- Energy Sector Equity
Invesco Opp SteelPath MLP Alpha Y MLPOX 36.00 1.88 -- -- -- Energy Sector Equity
Invesco Opp SteelPath MLP Income Y MLPZX 30.00 1.66 -- -- -- Energy Sector Equity
Invesco Oppenheimer Em Mkts Lcl Dbt Y OEMYX 67.00 0.95 -- -- -- Emerging Markets Fixed Income
Invesco Balanced-Risk Commodity Strat Y BRCYX 96.00 1.15 -- -- -- Commodities Broad Basket
Invesco Oppenheimer Ultra-Short Dur Y OSDYX 51.00 0.25 -- -- -- US Fixed Income
Invesco Emerging Markets Select Equity Y IEMYX 104.00 1.08 -- -- -- Global Emerging Markets Equity
Invesco Opp SteelPath MLP Alpha Plus Y MLPNX 44.00 3.33 -- -- -- Energy Sector Equity

On average, an investor who utilized an equity strategy from Invesco experienced a 1.18% expense ratio. Similarly, an investor who utilized a bond strategy from Invesco experienced a 0.92% expense ratio.

These expenses can have a substantial impact on an investor's overall accumulated wealth if they are not backed by superior performance. The average turnover ratios for equity and bond strategies from Invesco were 42.61% and 62.13%, respectively. This implies an average holding period of about 28.17 to 19.32 months.

It's safe to say that Invesco makes investment decisions based on relatively short-term outlooks, which means they trade fairly often. Again, this is a cost that is not itemized to the investor but is definitely embedded in the overall performance.

In contrast, most index funds have very long holding periods--decades, in fact, thus deafening themselves to the random noise that accompanies short-term market movements, and focusing instead on the long-term.

Performance Analysis

The next question we address is whether investors can expect superior performance in exchange for the higher costs associated with Invesco's management "expertise." We compare each of its 132 strategies -- which includes both current funds and funds no longer in existence (since inception with data through 2018) -- against its current Morningstar assigned benchmark to see just how well each has delivered on their perceived value proposition.

We have included alpha charts for each of their current strategies at the bottom of this article. Here is what we found:

  • 55.30% (73 of 132 funds) have underperformed their respective benchmarks or did not survive the period since inception.

  • 44.70% (59 of 132 funds) have outperformed their respective benchmarks since inception, having delivered a POSITIVE alpha.

So it's safe to say that investors in active mutual fund strategies offered by Invesco have faced an uphill battle in picking a manager-led strategy that outperformed its independently analyzed and Morningstar-assigned benchmark -- or, in fact, in selecting an active fund from this family that had survived over its lifetime. 

Here's the real kicker, however:

  • 3% (4 of 132 funds) have outperformed their respective benchmarks consistently enough since inception to provide 97.5% confidence that such outperformance will persist as opposed to being based on random outcomes.

In other words, of the strategies that delivered a positive alpha, just four produced enough consistency to yield a statistically significant result. 

It's safe to say that the majority of active mutual fund strategies offered by Invesco haven't outperformed their Morningstar-assigned benchmarks or survived over their lifetime. The inclusion of statistical significance is key to this exercise as it indicates which result is the most likely versus random-chance outcomes.

Regression Analysis

How we define or choose a benchmark is extremely important. If we relied solely on commercial indexes assigned by Morningstar, then we may form a false conclusion that Invesco has the "secret sauce" as active managers.

Since Morningstar is limited in terms of trying to fit the best commercial benchmark with each fund in existence, there is of course going to be some error in terms of matching up proper characteristics such as average market capitalization or average price-to-earnings ratio.

A better way of controlling these possible discrepancies is to run multiple regressions where we account for the known dimensions (betas) of expected return in the U.S. (i.e., market, size, relative price, etc.).

For example, if we were to look at all of the U.S.-based strategies from Invesco that've been around for the past 10 years, we could run multiple regressions to see what each fund's alpha looks like once we control for the multiple betas that are being systematically priced into the overall market.

The chart below displays the average alpha and standard deviation of that alpha for the past 10 years ended 12/31/2018.

Invesco_Regression_Analysis_IFA

As you can see, the one fund that met the criteria didn't produce an alpha that was statistically significant at the 97.5% confidence level (green shaded area).

What we can say is that all mutual fund active strategies from Invesco do not have a statistically significant alpha once we control for their overall risk exposure. Why is this important? It means that if we wanted to simply replicate their risk exposure, we could do so more cost effectively through the use of index funds.

Given the lower costs associated with index funds, we could have more confidence that we will experience a more desirable result compared to more expensive actively managed funds.

Conclusion

Like many of the other largest financial institutions, a deep analysis into the performance of Invesco has yielded a not so surprising result: active management is likely to fail many investors. We believe this is due to market efficiency, costs, and increased competition in the financial services sector.

As we always like to remind investors, a more reliable investment strategy for capturing the returns of global markets is to buy, hold and rebalance a globally diversified portfolio of index funds.

Below are the individual alpha charts for the existing Invesco mutual funds that have five years or more of a track record.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Here is a calculator to determine the t-stat. Don't trust an alpha or average return without one.

The Figure below shows the formula to calculate the number of years needed for a t-stat of 2. We first determine the excess return over a benchmark (the alpha) then determine the regularity of the excess returns by calculating the standard deviation of those returns. Based on these two numbers, we can then calculate how many years we need (sample size) to support the manager's claim of skill.




Footnotes:

1.) Invesco, Third Quarter 2019 earnings report for the three months ended Sept. 30, 2019. 

2.) The Financial Times, "Invesco bleeds $1bn a week as it tops worst-selling league table," Nov. 10, 2019. 


This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Performance may contain both live and back-tested data. Data is provided for illustrative purposes only, it does not represent actual performance of any client portfolio or account and it should not be interpreted as an indication of such performance. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you.  For more information about Index Funds Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.