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How Baseball, Investment Managers Measure Talent Isn’t So Different

“We are born again, there is new grass on the field…”
John Fogerty- The Central Zone

The report of pitchers and catchers to Spring Training is a pivotal moment for baseball fans. After a long winter, it’s always one to look ahead, when thoughts turn to spring and optimism reigns. It marks the start of the baseball season and the sunny days or warm evenings spent at the ballpark, the sport we love. It brings us back to our youth – the smell of freshly cut grass and glove oil or the sound of a bat crackling and a fastball popping in a catcher’s mitt evoke nostalgia of simpler times. We remember going to sports as kids and now cherish the days spent making new memories at the ballpark with friends and family.

However, even the casual fan knows that baseball is not as simple a sport as our childhood memories. It’s a wonderful combination of strategy and action-thinking man’s game. The game is loaded with statistics and becomes a continuous chess match for players and managers.

With everything else going on in the world – rising interest rates, high commodity prices, the war in Ukraine and a lingering pandemic – we are really looking forward to the start of this season. We anxiously awaited a solution to the MLB lockdown and instead made contingency plans for college, high school or even watching little league baseball. Instead of debating the sabermetrics and advanced statistics of professional players, we decided to have a little fun comparing some of the financial metrics of portfolio management with America’s pastime.

War vs. Alpha

A player’s batting average may be the most familiar statistic in baseball to all fans and is a basic way of measuring their qualifications at the plate, just as Morningstar’s batting average measures the percentage of months a manager has achieved their respective benchmarks. has performed better over a period of time. , When your portfolio manager steps into the batsman’s box, how often are they out of competition? In the early days of moneyball, wins above replacement (WAR) became a popular statistic—how many more wins a particular player added to his team’s total than an average “replacement player”. Slugging percentage also measures how many bases a player gets from each hit. These two statistics can be similar to the alpha that an investment manager generates – how much additional returns a manager’s skill adds to the returns above the market as measured by an index or benchmark.

Percentage vs Save Downside Capture Ratio

Turning to the defensive side of the field – Defensive Runs Saved This examines how many runs a particular player saves or prevents, such as the Sortino Ratio using the negative deviation of the fund’s total standard deviation rather than the positive to risk-adjusted return. How does it measure? negative return.

While offenses and home runs sell tickets, purists would love to see a well-pitched game. Keeping this in mind, the save percentage can be compared to the downside capture ratio. Even though this metric may be more common in MLBs to gauge closures, a fund’s bottom downside capture demonstrates the ability of managers to navigate the markets when things are trending downward, allowing the fund to lose additional capital. is saved from.

As the day approaches, clients are taking this opportunity to ask themselves whether the portfolio managers to whom they entrust their capital are performing well. Turbulent markets have a way of exposing those who are just riding out the beta tailwind – rising equity markets or steadily falling interest rates. Now is the time to keep them or cut them.

Jeffrey Rosenkranz is a portfolio manager for Shelton Tactical Credit Fund and Kyle Johnson is a fund analyst at CFA Shelton,

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