There ought to be an investment portfolio index.

Now there is one, thanks to the efforts of two of our contributing editors

We were once shown a faxed piece of bank-directed research that started with something like, "Every portfolio is like a snowflake. Each bank has different needs, and so there is a bond for every portfolio and

a portfolio for every bond." This kind of statement leads to other conclusions, like, "Since every portfolio is unique, then why compare their performance?" But the reality of bank portfolio management, as we have seen over the years, is that bank portfolios are very much more alike than they are dissimilar. Chart A shows just how tightly banks were gathered in their year-ending third quarter 1996 total returns (latest full year of data available).

Similar graphs show tight variances for 1994 and 1995. Generally speaking, a group of "unique" portfolios should have a much wider variance. Furthermore, when one looks at portfolio performance according to size or community type, one finds no direct correlation. But let's give a better reason why banks can and should compare their portfolio results.

NEW TOOL NEEDED

While we have seen many banks with very, very different loan portfolios across the country, bankers seem to be comfortable (at least when the comparison is favorable!) comparing their loan performance to others'. And while liabilities range from totally interest-rate sensitive to insensitive, bankers do not generally object to comparison in this area, either. But for some reason, in the third major financial instrument within the bank (the securities portfolio) there has been no tradition of comparison. This is very strange when one considers that the investment portfolio is the one area of bank management where everyone plays on the same field. All banks have access to the same securities! Then why don't we compare results? The answer is that we need a good tool to do so.

The most obvious solution would be to use call report data that measures both income and market values in the investment portfolio. But there are some problems with this methodology. First there is the lag time for the information. Call report data is usually not available from data providers like Sheshunoff, Plansmith, (F.I.R.E.) or IDC Financial Publishing for four or more months after quarter's end. The portfolio manager who wonders, "How has my portfolio performed over the last quarter?" cannot get his question answered for up to six months.