What do managers need to evaluate for their bond and equity selections?

Managers need to evaluate their after-tax performance when making selections for bonds and equities because it directly impacts the net return that investors will receive. The after-tax performance considers the effects of taxation on investment returns, which can significantly alter an investor's income. For example, certain bonds may yield higher before-tax returns, but if they are subject to high tax rates, the after-tax yield may not be competitive compared to other investment options. Similarly, for equities, the capital gains taxes applied to sold stocks affect overall returns. Thus, assessing after-tax performance is essential to understanding the true profitability of an investment and allows managers to make more informed decisions that align with the financial goals of their clients or funds.

In contrast, while market trends provide valuable context for investment decisions, they do not encompass the individual performance metrics that influence overall returns. The amount of initial investment is certainly important but does not provide a full picture of the expected performance after taxes. The reputation of the firm may contribute to investment decisions, but it is not a vital evaluative criterion specific to the performance of the selected bonds or equities.