Department of Statistics and Actuarial Sciene, University of Stellenbosch, Stellenbosch 7650, South Africa
van Heerden, J.D., Department of Statistics and Actuarial Sciene, University of Stellenbosch, Stellenbosch 7650, South Africa; Botha, A.F., Department of Statistics and Actuarial Sciene, University of Stellenbosch, Stellenbosch 7650, South Africa
Market indices and peer group comparison are the most commonly used proxies to measure a portfolio manager's relative performance and draw conclusions regarding a manager's skill in managing investment portfolios. However, methods based on both of these proxies have several drawbacks that may lead to incorrect conclusions regarding relative performance and skill. This study addresses the shortcomings of the traditional approaches, and applies an alternative method to eliminate their shortcomings, namely Portfolio Opportunity Distributions (PODs). The method is applied to all South African equity unit trust portfolios classified as either value or growth portfolios. Although data constraints ruled out any statistical testing of this hypothesis, the results nevertheless suggest that the PODs approach may indeed offer a more accurate performance measurement approach.