Fund Karma ratio what means to explain
We all pick the fund, perhaps will encounter a tangled problem, let's say: A fund in the past year return rate of 30%, the maximum retracement of 8%; and B fund in the past year return rate of 26%, the maximum retracement of 6%. So, if the two funds have similar investment styles, which one is more "cost-effective"? What is the meaning of the fund Karma ratio?
Fund Karma Ratio What Does It Mean
Nuoan Low Carbon Economy Stock A (001208)
Fund manager Cai Yubin, from January 22, 19 management so far, the last year's return of 31.56%, the maximum retracement of 5.43%, the karma ratio of 5.81. 2023Q3 Top Ten Long positions are, in order: Vanke A, China Taipao, Xinhecheng, Changsheng Bearing, China Construction, Jereh, Poly Development, Dahua, Coren Pharmaceuticals, and China Telecom, in real estate, finance, machinery and equipment, computers, and pharmaceuticals and biotechnology.
ICB Logistics Industry Stocks (001718)
Fund manager Zhang Yufan, who has managed the product since its inception on March 1, 16, has a return of 35.86% in the last one year, with a maximum retracement of 7.20% and a karma ratio of 4.98. The top 10 long positions in 2023Q3, in order of priority, are: RhymeTech, Ningde Times, Huaju Navigation, Shunfeng Holding, and Farrar Electronics, Enjie shares, Chunfeng Power, Star Semi-Conductor, Fuyao Glass, AVIC Optoelectronics, distributed in power equipment, transportation, defense industry, electronics, automotive and other industries.
Frontier Open Source Utility Stock (005669)
Fund manager Cui Chenlong, who has been managing the fund since July 20, 2023, has a return of 131.37% in the past one year, with a maximum retracement of 26.79% and a karma ratio of 4.90. The top 10 long positions in 2023Q3, in order, are: CR Power, YWP Lithium-Ion Energy, BYD, Huaneng International, Farad Electronics, China Power, Ningde Times, and China Power. , China Power, Ningde Times, CGN New Energy (H), CEC, Xintian Green Energy (H), focusing on power equipment, utilities, electronics and other industries.
BaoYing National Security Strategy Shanghai, Hong Kong and Shenzhen Stocks A (001877)
Fund manager Chen Jinwei, who has been managing the fund since Nov. 21, 2020, has a return of 67.26% in the last year, with a maximum retracement of 14.34% and a Karma ratio of 4.69. The top 10 long positions in 2023Q3, in order of priority, are: ZiGuang Guomo, Platinum Tech New Material, Eurofins, Oriental Shenghong, Tianzheng Electric, Zhongjian Technology, Construction Machinery, He and Tai, Ke Li Sensing, Huarong shares, distributed in electric power equipment, non-ferrous metals, machinery and equipment, defense industry, electronics and other industries.
Mixed funds with top Karma ratios
The 10 mixed funds with top Karma ratios in the past year, in order, are: Guangfa Multi-factors, CBI Trend Mix, Dacheng State-owned Enterprises Reform, Baoying Advantageous Industries, Anxin Xinfa Preferred Mix, China Europe Value Intelligent Returns, Hua'an Culture, Sports and Health Theme, Dacheng Emerging Industries, Huaxia Industry Scenario, and Boshi Houze Returns.
Guangfa Multi-Factor Mix (002943)
Fund managers Tang Xiaobin and Yang Dong, the former has managed since June 25, 18 to date, with a return of 89.33% in the last year, a maximum retracement of 9.40%, and a Karma Ratio of 9.50. The top 10 long positions in 2023Q3 are, in order, Hang Seng Electronics, Overseas Chinese Town A, Haitong Securities, Guotai Junan, Huatai Securities, Flush, Saturday, CITIC Securities, Golden Harvest, Lu'an Huaneng, distributed in real estate, computers, brokerage firms, chemicals and other industries.
JiaoBank Trend Mix A (519702)
Fund manager Yang Jinjin, who has managed the fund since May 6, 2020, has a return of 80.81% in the past year, with a maximum retracement of 8.81% and a Karma ratio of 9.17. The top 10 long positions in 2023Q3 are, in order, Taifuaxinmaterials, Mintai Aluminum, SINOQI Precision Industry, Focus Technology, RUNFENG, and Jiasi Technology, Zhongbing Red Arrow, Xin Platinum shares, JinkoSolar, Wuzhou Xinchun, distributed in textile and apparel, machinery and equipment, non-ferrous metals, chemicals, defense industry and other industries.
Dacheng State-owned Enterprises Reform Flexible Allocation Mix (002258)
Fund manager Han Chuang, who has managed the fund since Jan. 13, 2023, has a return of 98.48% in the past one year, with a maximum retracement of 11.16% and a karma ratio of 8.82. The top 10 long positions in 2023Q3, in order of priority, are: Sailun Tire, Grandway Energy, Mintai Aluminum, LUYANG Energy Conservition, Xingfa Group, PetroChina, Dongfang Electric, Jereh Shares, Shandong Heda, and Dongfang Fortune, which are distributed in automotive, petroleum and petrochemical, construction materials, power equipment, machinery and equipment industries.
BaoYing Advantageous Industry Mixed A (001487)
Fund manager Xiao Xiao, Chen Jinwei, the former from 7/1/17 management so far, nearly one year return of 101.30%, the maximum retracement of 11.59%, karma ratio of 8.74. 2023Q3 top ten long positions in order is: Yirui technology, Orient Shenghong, and and the Thai, Oulutong, Gongdong medical , Linyang Energy, Ptco New Material, Construction Machinery, Tianzheng Electric, Keli Sensing, distributed in the pharmaceutical and biological, petroleum and petrochemical, electronics, power equipment, non-ferrous metals and other industries.
What are Sharpe and Karma ratios?
1, Sharpe Ratio
In the capital market, the Sharpe Ratio, on the other hand, is one of the most important fund evaluation indicators, reflecting the risk-adjusted return. It was first proposed by Nobel laureate William Sharpe in 1966.
Often the Sharpe ratio can be simply defined as: (annualized return - risk-free return)/annualized volatility. It shows how much excess return a fund can earn for each unit of risk taken.
In other words, the Sharpe ratio is a measure of the "value for money" of an investment.
Generally speaking, a Sharpe ratio greater than 1 means that a portfolio's return is higher than its volatility risk, while a ratio less than 1 means that a portfolio's volatility risk is higher than its return. When using the Sharpe ratio for fund comparisons, it is generally a positive value, the larger the better.
But note that when using the Sharpe ratio, be sure to aggregate comparisons across funds of the same type, or it won't make sense. It's also a measure of a fund's historical performance, which doesn't mean it will necessarily perform the same way in the future.
2. Karma Ratio
The Karma Ratio is the brother of the Sharpe Ratio. It is also an important indicator for fund evaluation.
Formally, the Karma Ratio is much like the Sharpe Ratio in that the denominator measures the volatility of the portfolio and the numerator measures the return of the portfolio.
Unlike the Sharpe Ratio, the Karma Ratio's denominator is chosen to be the maximum retracement of the range, which represents the extreme risk of downward portfolio volatility, while the numerator is chosen to be the portfolio's annualized rate of return, which represents the portfolio's absolute rate of return. The higher the Karma ratio, the higher the level of return the fund can earn per unit of retracement loss taken.
So in terms of practical application, the Karma Ratio is more applicable to absolute return target products such as bonds, fixed income+ and quantitative hedging.
At the same time, the maximum retracement as the denominator is also more in line with the psychological activities of investors who are seeking upward movement and averse to downward movement. It is an investment tool for discovering high-quality "fixed income+" funds at a time of high market volatility.
What is the Karma Ratio?
Let's take a look at the Karma Ratio formula:
Karma Ratio = Interval Annualized Return/Interval Maximum Retracement
As you can see from the formula, the Karma Ratio is a measure of a fund's return versus its maximum retracement: the level of return that an investor can earn per unit of retracement. The higher the Karma Ratio, the higher the level of return per unit of retracement that the fund is able to achieve, hence the term "return per unit of retracement".
As an example, Fund A has an annualized return of 20% over the last 3 years and a maximum retracement of -10%. Fund B has an annualized return of 50% over the last 3 years and a maximum retracement of -40%. By calculation, the kamma ratio of fund A is 2; the kamma ratio of fund B is 1.25.
For investors, although the annualized return of fund B is higher, the risk of retracement is also greater; although the annualized return of fund A is relatively lower, the risk of retracement during the holding period is also smaller, and the holding experience will be better. So, although Fund B has a relatively excellent annualized return, the level of return per unit of retraction is actually not as good as that of Fund A.