Listed for three-, five-, and 10-year periods. The asset-weighted average of the alpha, beta, and R-squared figures of the holdings in the portfolio. The sum of the alpha, beta, and r-squared of each holding multiplied by the weight (%) each holding takes up in the portfolio equals the average alpha, beta, and R-squared of the portfolio as a whole.
Alpha
A measure of the difference between an investment's actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the investment has performed better than its beta would predict. In contrast, a negative alpha indicates the investment’s underperformance, given the expectations established by the fund’s beta. All MPT statistics (alpha, beta, and R-squared) are based on a least-squared regression of the investment’s return over Treasury bills (called excess return) and the excess returns of the investment’s benchmark index.
Beta
A measure of a holding's market risk. Morningstar calculates beta using the same regression equation as the one used for alpha, which regresses excess return for the portfolio [this used to read fund or portfolio] against the benchmark index. The beta of the market is 1.00. Accordingly, a fund with a 1.10 beta is expected to perform 10% better than the market in up markets and 10% worse in down markets. Conversely, a beta of 0.85 indicates that the fund is expected to perform 15% less than the market in up markets and 15% better in down markets.
Note: A low beta does not imply a low level of volatility; rather, it means that the market-related risk is low. Beta is only a useful measure of risk when the R-squared associated with it is high (close to 100).
Returns are calculated by asset-weighting the monthly returns of the underlying holdings based on end-of-period market values and thus reflect the pre-tax results one would have gotten by rebalancing the portfolio on a monthly basis.
R-squared
Reflects the percentage of an investment's movements that can be explained by movements in its benchmark index. An R-squared of 100 indicates that all movements of an investment can be explained by movements in the index. Thus, index funds that invest only in S&P 500 stocks will have an R-squared very close to 100. Conversely, a low R-squared indicates that very few of the investment vehicle’s movements can be explained by movements in its benchmark index. An R-squared measure of 35, for example, means that only 35% of the investment’s movements can be explained by movements in the benchmark index.