Portfolio Scoring Methodology
Wealthscope evaluates a prospect’s portfolio using its current in five key dimensions: Performance, Downside Protection, Fees, Income, and Diversification. A letter grade and a percentage are displayed for each dimension, as well as for the overall portfolio. There are five possible letter 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 ETF and a Canadian bond index ETF (MSCI All Country World) by default. A prospect also has the option to use a domestic equity benchmark (TSX Capped Composite) instead. The benchmark portfolio is automatically assigned, and it has an asset allocation 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.)
The overall score is the mean of the five dimension scores.
Five Key Portfolio Dimensions
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.
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.
Scored using a portfolio’s average pairwise correlation and four dimensions of diversification a) asset class, b) regional stock markets, c) global business sectors, d) macroeconomic factors. A higher score means that a portfolio’s risk exposures are more spread out, and hence better.