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RPHYX Sharpe Ratio

I noticed that the Sharpe Ratio for RPHYX is much lower than it used to be 3 yr 0.75 and 5 yr 1.41, according to Morning Star. Is this cause for concern? I currently own DHEAX as a lower risk bond fund. I was thinking of adding more cash to it or starting a position in RPHYX now that it is open. Thank you for your thoughts.


  • Hi, Gundlar.

    Sharpe is a calculation of a fund's risk-adjusted returns minus the returns available from a risk-free investment, typically a T-bill.

    Neither the risk nor the returns of RPHYX have meaningfully changed. The volatility measures for RPHYX have not materially changed over the trailing 1, 3, 5, and since inception periods. The standard deviation, for example, is 0.7 / 0.6 / 0.7 / 0.7. Downside deviation is 0.4 / 0.3 / 0.3 / 0.3. Max drawdown and such, likewise.

    Annual returns since at 2.5 / 2.6 / 2.6 / 3.1.

    My best guess, then, is that the "risk-free rate of return" has increased.

    Out of curiosity, I passed along your question and my speculation to the manager, David Sherman. If I hear back, I'll share what I learn.

  • edited March 2020
    Thank you David. Yes it still looks to be holding steady, but when I read the last few write-ups about its sharpe ratio being so high, I thought maybe I was looking at the wrong fund for a second. Where does the risk free rate number come from? I think you must be correct. I just looked up how sharpe ratio is calculated. Since the other numbers haven't changed, the risk free rate has to be the answer. My new questions are: why did Morningstar change that number so much and did they change it across the board or just for the category of RPHYX? To be honest this is all a little above my knowledge base, but I am learning.
  • Risk free rate has gone up because rates have been going up... until more recently... This has nothing to do with M* "changing" anything.
  • Mr. Sherman affirms our guess: "RPHIX excess spread over treasuries has diminished as rates rose. Further, high yield index spreads compressed toward historic lows which permeates to all investment selections and also created crowding in the very short maturity segment. Basically, we are saying the same thing [as you did on the discussion board]. With the recent decline in UST [ultra-short Treasuries], our spread differential is expected to improve and thus our Sharpe ratio."
  • Thank you David and thank you JoJo26. That makes sense, even if I still don't fully understand exactly where to find the risk free rate. Overall I think I have a better grasp on the sharpe ratio.
  • @Gundlar "Risk-free" would be FDIC-insured. A bank account or C.D. The benchmark 10-year US Treasury bond is virtually risk-free, too. It carries the "full faith and credit" of the US government. Many webpages publish current 10-year rates, and others--- domestic and foreign. Here's one:
    Check the very top of the page.
  • @Crash
    Thank you Crash
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