Evergreen Consultants has introduced a portfolio stress-testing tool within GreenVUE Evergreen’s proprietary portfolio analytics system.

Basis the multi-factor analysis of portfolios in a variety of events and market influences, GreenVUE will enable financial advisers to envisage their investment portfolio’s return, risk, and characteristics.

What does the stress-testing tool have in store?

The GreenVUE tool is engineered to enable advisers to operate portfolios via re-simulations of the global financial crisis, oil shocks and US recession, the Euro-debt crisis, rising global interest rates, the US credit rating downgrade, trade conflict, and the COVID-19 pandemic.

Angela Ashton, Founder of Evergreen, makes an important mention about risk and explains that it is human nature to concentrate on the expected return. However, the risk being taken to generate that return often takes a back seat.

Ashton states, “There is no way to invest without risk, but the best way to guard against risk is constantly to measure it and asses it-and to manage it.”

“One of the most common tools that institutional investment managers use to manage their risk is portfolio stress-testing.”

The experts take

David Cohen, Senior Analyst at Evergreen, mentioned that financial advisers find it challenging to adequately stress test portfolios because of zero access to the right tools.

He added, “Adequately assessing the range being run by an investment portfolio and estimating outcomes under a range of different scenarios can be a very complex procedure, but it is something that directly benefits the advice process.”

“It is not only an essential part of client reporting, it is a crucial element of managed account compliance. We think this is a unique tool in the adviser marketplace.”

Cohen expressed, “The tool assesses how today’s portfolio would perform if these historical events and the markets’ reaction to them were repeated, in terms of the total return, maximum drawdown and volatility that could be expected.”

Cohen added that Evergreen’s adviser clients would typically use the information that GreenVUE gives them in their individual investment committee discussions as part of model portfolio reviews.

“It will act as a risk management tool in the first instance, as we can use it to test where we think Portfolio positioning is in terms of our model portfolios, and what market impacts we could expect on the portfolios in stress environments,” Cohen said.

“These will also play a role in model compliance reporting to platforms who ask for stress testing in their capacity as responsible entity (RE) of the models,” Cohen added.