Treynor measure is the portfolio premium over the risk-free rate divided by beta. A ‘good’ Treynor ratio is one that is larger than the slope of ex post SML.
EDIT: In other words, Treynor has to be greater than 1 to imply market skill?
EDIT: Sorry for all the edits. I must not be fully awake yet.
Bottom line, to use Treynor ratio effectively, one must compare the Treynor ratio of the market itself. In other words, the Treynor ratio of the market could be negative and a slightly less negative Treynor ratio could imply manager skill (even tho it is negative)
Correct: you want your manager to have a higher Treynor ratio than that of a passive (e.g., market index) portfolio.
Note, too, that the Treynor ratio is appropriate only for fully diversified portfolios.