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Feature Overview: Venncast
Feature Overview: Venncast
Anna German avatar
Written by Anna German
Updated over a week ago

Rev. Date December 11, 2023

What is Venncast?

Understanding current performance is important for reporting, stakeholder communication, market analysis, and many other reasons. Because returns are often only available on a delayed basis, understanding current performance can be challenging. Answering the basic question of “How is my portfolio doing?” should not be so hard. Venncast helps users meet this challenge by providing current portfolio and investment performance estimates before actual returns are available.

What is displayed when Venncast is enabled in the cumulative return graph?

The Venncast Estimated Performance graph can show various pieces of information for an investment depending on how up-to-date your organization’s data is in Venn:

  • Pro forma portfolio or investment returns (solid line without error bands). These use the returns provided by your organization

  • Estimated performance (dotted line with error bands)

  • Benchmark returns (if a benchmark has been selected)

How does Venncast estimate performance?

Venncast uses your portfolio or investment’s factor exposures and the factor returns to estimate the current performance. The Venncast methodology includes:

  1. Venncast uses your portfolio or investment’s factor exposures and the factor returns to estimate the current performance. The Venncast methodology includes:

    1. Finding the most recent date where your organization has provided Venn with portfolio or investment data

    2. Using at least 6 months of daily data or 1 year of monthly data prior to that date to estimate the factor exposures and residual return using the Two Sigma Factor Lens [1]

    3. Producing a Venncast performance estimate by multiplying these factor exposures by the daily factor returns and by adding the residual return (which is held constant over the estimation period)

Please note that for portfolios, Venncast will estimate the performance for the total portfolio starting from the most constraining date, even if some of the underlying investments may have realized recent returns. For example, if a portfolio consists of Investment A, whose returns data ends in March 2023, and Investment B, whose returns data is available through May 2023, Venncast will estimate the portfolio’s performance from March 2023 onwards using the steps outlined above (i.e., using portfolio’s trailing 1 year of monthly returns ending March 2023).

Can you provide an illustrative example of how Venncast works?

What do the error bands in the performance chart represent?

Venncast performance estimates are estimates only and carry many uncertainties, which the error bands attempt to quantify. Uncertainties include errors in estimating factor exposures and the volatility of the residual return.

Portfolios with small or less volatile residual returns will generally have smaller error bands.

What are some key inputs for the error band calculations?

The error bands reflect the volatility of the residual return and the covariance of factor returns over the estimation period. Please note that actual returns may be beyond the ranges reflected by the error bands.

How far out can Venncast estimate portfolio returns?

Venncast can estimate portfolio performance for up to 6 months.

When will Venncast be most accurate?

Venncast tends to be more accurate when portfolio and investment returns are up-to-date in Venn. This can allow for a more accurate estimation of the current factor exposures. Additionally, portfolios or investments with small or less volatile residual returns can often have more accurate Venncast estimates. This is because more of the portfolio’s risk and return may be captured by factors in these instances. Finally, Venncast assumes no portfolio rebalancing over the estimate period.

Why is Venncast not estimating performance for my portfolio or investment?

There may not be enough of a return history for Venncast to estimate factor exposures. Venn requires at least 6 months of daily data or 1 year of monthly data.

Venncast is not available for portfolios or investments with quarterly data, and will only be available if the quarterly returns are interpolated. Please note that for interpolated quarterly returns, Venncast will display proxy-based extrapolated data instead of the factor-based extrapolation outlined in this article. For more details on interpolation and the proxy-based extrapolation, please refer to this article.

I turned on Venncast, but why is my analysis period not updating?

Venncast is only available within the cumulative return graph, and the estimated returns data cannot be used for analysis. To extend your investments’ returns forward and use the data for analysis, you must use a proxy to extrapolate the returns. When extrapolation is enabled, Venncast will start at the end of the extrapolated period.

Please refer to this document for more information.

Proxies are for estimation purposes only and have many inherent limitations. The methodology for calculating potential proxies was chosen in our professional judgment, and will not always yield the most accurate available proxy. Our potential proxy suggestions are not a recommendation as to any portfolio, allocation, strategy, or investment nor an offer to purchase or sell any security. We suggest users do their own research to use the public proxy that best fits their own use case.

[1] The minimum amount of data required depends on data frequency and type of analysis. For Venncast, if a user’s portfolio or investment has daily data, Venn will require at least 6 months, or if monthly it will require at least 1 year. For both daily and monthly data, Venn will prefer to use up to 3 years.

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.

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