Trillium News

Go Figure: The Olympics of Investing(A)

As I write this, I’ve been immersed in watching the Olympics, especially figure skating. As a former skater myself, I’ve been intrigued with the intricacies and implications of the new scoring system. Skiers and bobsledders race the clock, but for figure skaters keeping score is multi-dimensional and now has new twists and turns as the scoring system has been significantly revised. Please indulge me as I look at how we measure investment performance through the eyes of a former skater and recent Olympics addict.

There are two parts to a skater’s overall score under the new system. The first part, the Technical Score, is a straightforward rating of the difficulty and execution of specific required moves. In the investment world, the standard equivalent of the Technical Score is measuring performance against market indices or benchmarks. The standard benchmarks we use in measuring the performance of Trillium portfolios are:

S&P 500 – a representative sample of 500 U.S. companies in leading industries of the U.S. economy, focused on the large-cap segment of the market but also often used as a proxy for the total U.S. stock market. We use the S&P 500 as a benchmark for our Large Cap and some All Cap portfolios.

S&P 1000 – a representative sample of 1000 mid cap (70%) and small cap (30%) stocks, capturing the non-large cap portion of the U.S. stock market. We use the S&P 1000 as a benchmark for our Small-Mid Cap portfolios.

S&P 1500 – a broad market composite index that includes the S&P 500 (large cap), S&P 400 (mid cap) and S&P 600 (small cap) and represents 90% of U.S. equities by market capitalization. We use the S&P 1500 (along with the S&P 500) as a benchmark for some of our All Cap portfolios.

Lehman Brothers Government Credit Intermediate Bond Index – we use this index of government and corporate bonds with maturities between one and ten years as a benchmark for our tax-exempt bond portfolios.

Lehman Brothers State General Obligation Municipal Bond Index – we use this index of municipal bonds as a benchmark for our tax-sensitive bond portfolios.

In skating, judges score the quality of each element performed along with the difficulty of each element undertaken. Skaters are measured against each other. In investing, we score the return of a portfolio and the risk undertaken in achieving that return. Investment performance is measured against market indices, and often the performance of other similarly managed portfolios. The Technical Score, and its investment equivalent, is one critical measure of success.

But in skating technical scores don’t tell the whole story, and I would argue the same is true for investing. In skating, the second part of a skater’s score, the Program Component, is designed to rate less tangible elements that essentially equate to artistry – choreography, flow, creativity, musicality, purpose and vision, emotional and physical involvement. In skating, artistry makes the difference between good and great, between the skater that simply lands the jumps and the one who brings an audience to its feet.

The investment equivalent would be such equally hard-to-quantify elements as corporate sustainability, workplace equality, and economic justice – areas not typically measured by investors but that add another dimension of great value to investment performance. Some say artistry doesn’t have a place in sport. Some say social responsibility doesn’t have a place in investing. I say the skating world may be one step ahead of the investment world here – while investors have yet to create universal benchmarks for the social responsibility of portfolios, skating has found a way to explicitly value qualities that might be challenging to gauge but provide something many find vital: a sense of meaning and humanity behind the raw numbers.