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Portfolio Scoring Methodology
Wealthscope evaluates a prospect’s portfolio using its current composition in five key dimensions: Performance, Downside Protection, Fund Fees, Income, and Diversification. A percentage and a letter grade are displayed for each dimension, as well as for the overall portfolio. There are five possible grades: A, B, C, D, and F.
The portfolio's Performance and Downside Protection are assessed against a simple benchmark portfolio that holds a global equity index (MSCI All Country World) ETF and a Canadian universe bond index ETF by default. A prospect also has the option to use a domestic equity benchmark (TSX Capped Composite) instead. The benchmark's asset allocation is automatically assigned to the one that is closest (by 10% increment) to the prospect’s own portfolio.
The scores are awarded based on the prospect’s current portfolio over a specific period, given by the longest common history of the securities in the portfolio. (See the footnotes in the sample Portfolio Scorecard for more details.)
Overall Score
The overall score is the mean of the five dimension scores.
Five Key Portfolio Dimensions
1/ Performance
Scored using a portfolio’s annualized return and three risk-adjusted ratios: the Sharpe, Roy’s Safety First, and the Sortino (relative to those of the simple benchmark portfolio). If a portfolio matches rather than outperforms the benchmark, it will get a pass, at 65%. The higher the score, the better.
2/ Downside Protection
Scored on three downside measures of risk: maximum drawdown, downside risk, and downside capture (relative to those of the simple benchmark portfolio). If a portfolio matches rather than outperforms the benchmark, it will get a pass, at 65%. The higher the score, the better.
3/ Low Fees
An evaluation based on a portfolio’s weighted average management expense ratio (MER). Calculated assuming a maximum possible portfolio MER of 3%. The higher the score, the better.
4/ Income
The score is calculated using a maximum dividend/distribution yield of 5%, i.e., a portfolio yield of 5% will receive a maximum score of 100%. A higher score suits someone who is reliant on income from their portfolio. Given the prospect's objective, they can choose to exclude income from the overall score.
5/ Diversification
Scored using a portfolio’s weighted average pairwise correlation, diversification across regional stock markets, global business sectors, and macroeconomic factors. A higher score means that a portfolio’s risk exposures are more spread out, and hence better.
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