In order to create a portfolio with historical allocations on Venn, we first need to make sure the investments are in your data library. You can leverage the Venn-provided database of investments or upload your own. Importantly, we will need returns for each investment over the entire period that they were included in the portfolio, even if the investments are not in the portfolio as of today. For example - if you were invested in a manager from April 1, 2015 to March 31, 2018, at which point you exited the position, we will need the fund’s performance over those 3 years to exist in your data library.
Once all your investments and their returns are in the data library, we can then click the “+ Investments / Portfolios” button in the lower left of Venn and use the Portfolio Builder functionality to upload the historical allocations associated with each investment that has ever been in the portfolio. (Please refer to the Historical Portfolios FAQ for additional information and be sure to take a look at the sample templates for organizing your data into a readable format.)
Now we’re ready to start analyzing!
This new block, available on Studio and Report Lab, shows an area chart of the top-level strategies’ or individual investments’ allocations over time. One can compare this block to the historical performance and/or Sharpe ratio charts, to emphasize how strategic asset allocation changes have coincided with risk-adjusted returns over time.
Use Venn to see which investments and strategies are driving metrics such as return, Sharpe ratio, volatility and max drawdown.
Now that we have the historical performance of your portfolio, Venn can run regressions to view the betas to our factors over the full period, and on a trend view, over various rolling periods. This output can help you better understand how changes made to the portfolio have coincided with various exposures to different factors, or to the same factors, reflecting consistency.
These analyses show all historical drawdown periods a portfolio experienced over the timeframe of your choosing. Key metrics such as the portfolio's drawdown percentage, drawdown length, recovery period and benchmark performance provide a helpful snapshot for each period. Interested in viewing only extreme historical drawdowns? It’s easy to filter for a specific “Drawdown Threshold.”
You can also view the Historical Drawdown Chart to visualize how your portfolio has actually drawn down through history. The line will be at zero if the portfolio never entered a drawdown during the analysis period selected (i.e., values range between 0% and -100%).
Select from a preset list of well known historical periods to identify if a portfolio had either underperformed or outperformed given observed returns over that time period (e.g., The Global Financial Crisis, U.S. Taper Tantrum, Oil Price Shock of 2015, EM Melt-Up, Brexit, COVID-19 Crisis, and more).
Enter a threshold to see all the periods that a portfolio underperformed or outperformed a given threshold, throughout its history. Use this to better understand when and how often tail events occurred historically.
Sensitivity Analysis is a forward-looking tool that shows you how a shock to a particular input might impact your portfolio. You can select from over 60 options to shock. Venn calculates the sensitivity of the shock input’s returns as well as the portfolio’s returns to the factors in the Two Sigma Factor Lens.
By translating each return into the shared language of factor exposures, Venn can then estimate how a shock to one (here, the shock input) would likely affect the other (the portfolio or investment). When entering more "extreme" shocks (i.e., greater than 2 standard deviation events), Venn uses a proprietary machine learning-based approach to regime modeling by sampling from the distributions of certain market conditions. You can learn more about our approach here.
Check out our Feature Overview: Sensitivity Analysis for more information.
To note, Venn uses the “current” allocations of a historical portfolio to calculate forecasts by assuming buy and hold and drifting the weights based on the performance of the investments from the last reported allocations. Please refer to the Historical Portfolios FAQ for additional information.
Contact your CSS representative when you are ready to upload a portfolio with historical allocations.
This document highlights certain aspects of this feature. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.
Exposure to risk factors is not a guarantee of increased performance or decreased risk.
References to the Two Sigma Factor Lens and other Venn methodologies are qualified in their entirety by the applicable documentation on Venn.
This article is not an endorsement by Two Sigma Investor Solutions, LP or any of its affiliates (collectively, “Two Sigma”) of the topics discussed. The views expressed above reflect those of the authors and are not necessarily the views of Two Sigma. This article (i) is only for informational and educational purposes, (ii) is not intended to provide, and should not be relied upon, for investment, accounting, legal or tax advice, and (iii) is not a recommendation as to any portfolio, allocation, strategy or investment. This article is not an offer to sell or the solicitation of an offer to buy any securities or other instruments. This article is current as of the date of issuance (or any earlier date as referenced herein) and is subject to change without notice. The analytics or other services available on Venn change frequently and the content of this article should be expected to become outdated and less accurate over time. Two Sigma has no obligation to update the article nor does Two Sigma make any express or implied warranties or representations as to its completeness or accuracy. This material uses some trademarks owned by entities other than Two Sigma purely for identification and comment as fair nominative use. That use does not imply any association with or endorsement of the other company by Two Sigma, or vice versa. See the end of the document for other important disclaimers and disclosures. Click here for other important disclaimers and disclosures.