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Blue Heron PAIN INDEXES™

Each of the three Blue Heron PAIN INDEXES™ measures the performance gap between different investment strategies and benchmarks within a given broad style of management (i.e. Value, Core, and Growth).   It is an indicator of the "pain" an investment manager might feel as he/she adheres to the disciplines associated with her particular approach to management.   The greater the PAIN INDEX™, the more likely a given manager's performance will deviate from others who are within the same broad style but pursue a different strategy.

An understanding of strategy performance and their cycles is especially important when the spread between strategies within a broad style is large.   When spreads are large, the outperforming managers in a broad style may be credited with too much skill, and the lagging managers may be unduly penalized, when the performance differentials are really a difference in how the market currently rewards different investment strategies. For example, in risk averse markets, Dividend Yield managers in the Value style tend to be more amply rewarded than say, Discounted Value managers, who are more willing to buy non-dividend paying stocks. In a market where investors are less risk averse, Discounted Value managers may have the upper hand within the value style.

The PAIN INDEX™ measures the spread between the high and low performing SPI indicator and/or benchmark over various time periods. We include the relevant style index in the spread calculation because they have their own distinct characteristics, which can be thought of as a strategy (even though they are intended to be passive benchmarks). Some are also quite concentrated in market cap or sector exposure relative to active managers, causing substantial short-term performance differentials, depending on market trends.

*    Strategy return spread (basis points) within style

**   10th decile=highest pain

Each PAIN INDEX™ is based on the following clusters of SPI Indicators and benchmarks. 

Please select the US EQUITY SPI INDICATOR DESCRIPTIONS for definitions of these indicators.

BH-SPI VALUE PAIN INDEX™
• BH-SPI Value - Contrarian
• BH-SPI Value - Dividend Yield
• BH-SPI Value - Discounted Value
• BH-SPI Value - Midcap
• BH-SPI Russell 1000 Value Index

BH-SPI CORE PAIN INDEX™
• BH-SPI Core - Value
• BH-SPI Core - Neutral
• BH-SPI Core - Growth-at-a-Reasonable-Price
• BH-SPI Core - Growth
• BH-SPI Core - Midcap
• BH-SPI Russell 1000 Index

BH-SPI GROWTH PAIN INDEX™
• BH-SPI Growth - Consistent Growth
• BH-SPI Growth - Earnings Momentum
• BH-SPI Growth - Midcap
• BH-SPI Russell 1000 Growth Index

Blue Heron PAIN INDEX™ Levels for Value, Core, and Growth

The three charts below display the SPI Indicators for each broad style in excess return space and illustrate the variability between strategies in short term performance.

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