Unlike the other risk-adjusted measures, its results are highly intuitive. To me there's a parallel to the way we show gross and net performance, as well as pre- and after-tax results. For example, from a gross/net perspective we might see:
- Gross return = 17.45%
- Net return = 16.68%.
- Pre-tax return = 19.35%
- After-tax return = 16.45%.
- Before adjusting for risk = 18.27%
- After adjusting for risk = 16.45%.
If you're not including M-squared in your reporting, you should be!
And, if you'd like more information on this measure, send me a note.