Every allocator wants to know whether a fund is among the leaders in its strategy. The answer depends on how the peer group is defined and how performance is measured. This guide walks through the process step by step.
A ranking is only as good as the group behind it. Start with funds that run the same strategy, such as global macro, CTAs, French small caps or European large-cap value, then narrow by region, size or track record. Long-only funds, separately managed accounts and hedge funds each need their own comparison set.
| What you want to know | Statistics to use |
|---|---|
| Who earned the most | Annualised return, cumulative return |
| Who earned it efficiently | Sharpe ratio, Sortino ratio, Omega ratio |
| Who protected capital | Maximum drawdown, downside deviation |
| Who added skill | Alpha, information ratio |
| Who behaves differently | Correlation and beta to the peer group |
Ranking on a single number rewards whoever took the most risk. A weighted ranking combines several statistics in proportions that reflect your priorities, for example half on return and half spread across volatility, drawdown and VaR. The top fund under one weighting is often not the top fund under another, which is why the weights should be set before you look at the result.
A fund can lead its peer group for years on returns that hide a large tail risk. Before treating a fund as a top performer, review its worst drawdowns, its modified VaR and CVaR, and how it behaved in past crises.
The whole process is automated, so a question that once took an analyst a day of spreadsheet work is answered in a few clicks.
This guide is for information and education only. It is not investment advice. Past performance is not a guide to future returns.
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