In brief

  • Traditional measures of book yield performance focus almost entirely on returns; instead, measurement should include the risk taken to achieve the performance.
  • J.P. Morgan Asset Management has developed a book yield roll report for clients to measure our book income performance in multiple ways.
  • Multiple measures are required to properly track income performance over a market cycle.
  • Knowing the benefits and weaknesses of several types of measurement – book yield roll, total return attribution and scorecards – helps to inform book yield measurement.

Efficient portfolio management involves analyzing and balancing risks and returns. Therefore, any measurement process must account not only for returns but also the risks assumed to produce them. Yet when it comes to book yield perfor¬mance, traditional measures of book yield focus almost entirely on returns, with little attention to risk – an imbalance that can incentivize investors to add an inordinate amount of risk to increase yields. Likewise, total return measurement omits a consideration of the volatility of those returns, potentially exposing investors to selling securities at lower prices. Information ratio should complement total return performance, as it takes into account the volatility of excess returns. Below, we discuss scorecard measures, which can complement total return and book yield measurements.

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