inStream’s Asset class translator allows you to view the returns being used for each asset class while also providing the flexibility to set your own capital market assumptions for your allocations.
The asset class translator uses historical Morningstar index data for each asset class and is updated on a annual basis. Any changes you make to the risk and return values in this section will be reflected in the allocation models you create for your plans. In the settings section, each advisor within a firm will be able to view the updated values associated with each asset class, but only the administrator can edit the underlying returns used for the firm.
Note: Any changes in the Asset Class Translator updates the underlying return data in all of your allocation models. This won’t affect your tracking plans since they are run and recalculated on a night basis but non-tracking plans will need to be manually updated. Any plans that use custom return values in the allocation models, will not be impacted by changes made here.
How do I update the asset class return assumptions?
1. Login as Administrator.
2. Under Settings choose Custom Asset Classes. This is the screen where you can update your asset class assumptions.
3. The “Historical Risk & Return” column displays historical asset class returns based on the Morningstar data. These returns are updated annually. You can click on the “updated appendix” to view information on the underlying indices used to calculate the returns.
Note: We have blended long term proxy indicies with Morningstar indicies to provide the longest track record possible and all historical returns have a minimum of 10 years of data.
The “Expected Risk & Return” column displays the data currently being used by your firm. As a default, it reflects the old set of underlying assumptions for data ending in 2013. You can click on the “original appendix” to view information on the underlying indices used to calculate the returns.
Note: The original data set uses the same long term proxies with Lipper indicies instead. The data is no longer updated but is still available. If you don’t make any changes here, the plans will run on this original data set.
4. If you would like to keep the old set of assumptions, no change or input is required.
5. If you would like to update the values to reflect the Morningstar return data, click on “Edit” and choose “Apply Updated Values”. If you change your mind about which data set to use, we have provided an option to revert to the original 2013 data at any time by clicking on “Apply Original Values”.
6. If you would like to use your own customized set of underlying assumptions, click on “Edit” and manually input the risk and return data for the desired asset classes.
If you do not want to input risk and returns for all 56 asset classes, click on “Edit” and simply input risk and returns for the desired asset classes. All other unchanged asset class returns will then reflect either the new set of underlying assumptions updated for 2016, or the older 2013 data.
7. When manually entering, if you choose to input the Avg-1 Year Return and Standard Deviation, the system will automatically calculate the corresponding Annualized return. If you choose to input Annualized Return and Standard Deviation instead, the translator will calculate the Avg-1 Year Return.
Note: If you make manual edits to individual asset classes, we recommend reviewing these assumptions on an annual basis.
8. Once you are satisfied with the Expected Risk and Returns associated with each asset class, click Save.
9.You will receive a message to confirm, to ensure you aware that updating these values will impact your plan monte carlo score. If you wish to proceed, click OK. Remember, if you have non-tracking plans, you will need to re-calculate.
10. Existing and newly created allocation models will now use the updated values when calculating the portfolio return.