Composite Performance Measures

C

The AIMR-PPS require that managers disclose the dispersion of portfolio returns within each composite.

Composite dispersion measures represent the consistency of a firm's composite performance results with respect to the individual portfolio returns within a composite.

Composite performance refers to the overall performance of a portfolio management firm, which is typically evaluated based on the performance of individual portfolios managed by the firm. A composite is a grouping of portfolios with similar investment objectives or strategies.

Dispersion, in the context of composite performance, refers to the degree of variability or divergence among the individual portfolio returns within a composite. It measures how closely the returns of the portfolios within the composite align with each other.

A low dispersion indicates that the individual portfolio returns within the composite are relatively similar, suggesting a high level of consistency in performance. On the other hand, a high dispersion suggests a greater divergence in returns among the portfolios within the composite, indicating a lower level of consistency.

Therefore, composite dispersion measures are used to assess the extent to which a firm's composite performance results are consistent across the individual portfolios within the composite. These measures provide insights into the homogeneity or heterogeneity of portfolio returns and can help evaluate the effectiveness and reliability of a firm's investment management process.

In the given options, the correct answer is C. dispersion.