Risk-Adjusted Performance of South African Active Investment Strategy of Liability-Driven Investor

Abstract

This paper investigates the risk-adjusted performance of an active investment strategy tailored for a liability-driven investor (LDI) within the South African financial market. The primary focus is on a portfolio consisting predominantly of short-term government securities and cash, reflecting the LDI’s objectives of capital preservation and liquidity. Utilizing risk-adjusted performance indicators such as the Sharpe Ratio, Jensen's Alpha, and Sortino Ratio, along with Value at Risk (VaR) methodologies, this study provides a comprehensive analysis of the portfolio's risk-return profile over a period from August 29, 2000, to September 21, 2021. The findings indicate that the active management strategy has been effective in balancing risk and return, achieving competitive returns relative to the risks undertaken. The positive Jensen’s Alpha highlights the portfolio manager's skill in generating excess returns, while the VaR estimates offer insights into potential downside risks under various market conditions. This research contributes to the broader understanding of risk-adjusted investment strategies for liability-driven investors, particularly within emerging markets, and underscores the importance of ongoing portfolio monitoring and risk management.