Using Passive Index Portfolios to Benchmark Multi-Asset Funds and Investment Managers

What is PIPS?

1. Passive index portfolios ('PIPS') are rules-based passive portfolios easily constructed from common indices.

2. A 'PIPS-line' is the locus of such a portfolio plotted on a chart of volatility (standard deviation) vs return (total or annualised), by varying the constituent percentages.

3. PIPS is helpful for benchmarking multi-asset investment funds and portfolios simultaneously in the two dimensions of 'risk' and 'return'. The methodology is indedendent of peer-group data; thus giving an absolute metric rather than one based on quartile rankings within a set or sub-set.

4. Research shows that a majority of multi-asset funds (for base currencies GBP, USD, EUR, AUD; paper available on this website) and professional discretionary portfolios (for base currency GBP; paper to be published mid-2023) do not outperform a PIPS-line benchmark constructed of [E%] MSCI World Index TR [ccy] + [1-E%] Bloomberg Global Aggregate Bond Index [hedged-ccy] ('Walkers PIPS').

5. Implications of this data are important for professionals involved in the management of multi-asset portfolios, and their clients, as well as for do-it-yourself investors.