If your portfolio contains an asset with short history, you can still backtest the portfolio for extended periods of time by using backfills. Based on feedback from advisors, the latest release of Portfolio Lab adds enhancements to this functionality.
Choose any asset for backfill
You can choose any stock, mutual fund, ETF or index to act as the backfill (in the previous version, only certain indexes could be used.) The following example shows two backfills, one using a fund and the other one using an index. The backfill portions are shown in blue:
VWNEX (Vanguard Windsor fund Admiral shares) has history only from 2001. To allow backtest before 2001, the history is backfilled with VWNDX (Vanguard Windsor fund Investor shares.) Similarly, IVV ETF price history is backfilled using the S&P500 index Total Return.
The asset you choose as a backfill may itself not have enough history to extend to the desired period length. In this case, Portfolio Lab uses a second backfill.
In the example above, SPVIX (a small-cap mutual fund) has history from 2002. For backfill, SPVAX (the same fund but with a different share class) is used from 1997 to 2002 and the S&P 600 SmallCap Index is used as a second backfill from 1994 to 1997.
A stress test is an estimate of portfolio return under various scenarios. With this new feature in Portfolio Lab, you have one more tool to assess portfolio risk that is easy to use, easy to understand and to explain to clients.
To display the stress test results for a given portfolio, navigate to the Risk tab and select the Stress Test view:
Portfolio Lab supports stress test scenarios corresponding to the following historical events:
- Asian crisis (1997)
- Russian crisis/LTCM (1998)
- Tech bubble burst ( 2000/2001)
- WTC attack (2011)
- Subprime crisis (2008/2009)
An example of analysis result is shown below. Optionally, you can compare your portfolio against an index, or another portfolio:
The results are also available in table format and can be exported to Excel. For more details on Portfolio Lab’s stress test, please refer to the user manual.
Single index benchmarks such as the S&P500 are widely used but often inappropriate for measuring performance. As an alternative, blended benchmarks provide an appropriate reference for manager selection and performance attribution. Read our whitepaper.
How can this be done in practice? With Portfolio Lab it is easy to build a blended benchmark.
What if you wish to backtest a portfolio for an extended period of time, but the portfolio contains one or more assets with short history, for example a mutual fund or ETF with recent inception date ?
Portfolio Lab offers an automated approach to handle this situation. Using a proxy (a similar asset or index), Portfolio Lab fills the missing price history of the asset so that it can be used in backtest. Whenever such backfill occurs, Portfolio Lab displays a message at the bottom of the backtest window:
In this example, two assets in the portfolio (BLV and VPCCX) do not have sufficient price history for the selected backtest length of 10 years. The backfill details can be viewed and changed by clicking on the Edit button:
- BLV – a bond ETF – only has history back to 2007 (shown in green.) Its price history is extended by using a bond index (shown in blue.)
- VPCCX – a fund primarily allocated in large caps – only has history back to 2005. Its history is extended using the S&P500 prices.
Portfolio Lab automatically selects a backfill index by looking up the biggest allocation class for the asset. For example, a mutual fund whose biggest asset allocation is mid cap is backfilled with a mid-cap index.
Changing the backfill selection
To assign a different index for backfill, click on this index. A menu appears with a choice of available indexes. Portfolio Lab will remember your selection for future sessions.
Kwanti will be at the FPA Experience conference in Orlando, Oct. 19 to 21.
Visit us on the exhibit floor, booth #719 where you can see demos and have a peak at our upcoming product enhancements!