Which indicator would an investor use to assess a portfolio manager's risk-adjusted performance?

To assess a portfolio manager's risk-adjusted performance effectively, Jensen's alpha is a valuable indicator because it measures the excess return generated by a portfolio over and above the expected return as predicted by the Capital Asset Pricing Model (CAPM), given the portfolio's systematic risk. This means Jensen's alpha provides insights into how much value a portfolio manager has added through their investment decisions, adjusted for the portfolio's risk exposure.

A positive Jensen's alpha indicates that the portfolio has outperformed its expected return based on its beta (a measure of market risk), highlighting the manager's ability to skillfully navigate market conditions. Conversely, a negative alpha suggests underperformance relative to what would be anticipated based on a portfolio's risk profile.

Choosing Jensen's alpha as the answer reflects an understanding of how performance can be quantitatively assessed against risk, making it a suitable choice for evaluating a portfolio manager's effectiveness in generating returns.