Wednesday, February 13, 2013

Sharp Ratio Redefined

A Fund tear sheet came across my desk yesterday that caught my attention. It was from the bluest of blue-chip shops - a household name in the HF world touting a multi-system trend-following offering. What caught my eye was their incredible Sharp Ratio (TM by me). In case you think I've made an error, read on. Putting aside the five years of of impressive pro-forma modeled returns juxtaposed against their four years of less-than-pedestrian actual returns, yielding an actual Sharpe Ratio that was within a pubic-hair of zero, and a negative Sortino, with returns that would be challenged to best CP rates over the period of actual investment, their Sharp Ratio remained one of the best I've ever encountered. What then precisely IS the Sharp Ratio? The Sharp (sans "e" of the Nobel laureate) is the ratio of legalistic dross, explanatory footnotes, disclaimers etc. for every imaginable global jurisdiction prepared by razored lawyers and marketing minions in relation to the actual financially descriptive information contained in the tear-sheet. By this estimation, this Global Trading Fund's offering boasted a Sharp of 9. Yes, nine pages of unintelligible floatsam supporting a page detailing ostensibly undesirable returns with heightened risk! Oh, how the mighty have fallen, and and my condolences to the sods whose dead money remains in that kafka-esque eddy. When does one simply pull the plug rather than spend the resources to increase the Sharp Ratio? 

2 comments:

Anonymous said...

Love! I'd share this on Facebook but nobody would understand my shame.

-Fund marketing dept

Chris (i-cjw.com) said...

(avg return - gist free rate) / standard obfuscation