This is the time of year when many pension funds report their returns for the prior fiscal year. And often, the reported returns were calculated using a time-weighted method. But, is this appropriate? Or, perhaps, is more needed? In my way of thinking, pension funds, as well as other asset owners, should have two targets, […]
Read MoreSometimes, the labels don’t matter We just finished PMAR Europe 2017, an event that we felt was a huge success. And, as I often do, I made an attempt to interject a bit of humor from time-to-time. In one case, the “spark” behind it was one of the tea selections that was available: it was labeled […]
Read MoreThe revised GIPS for Asset Owners guidance statement hasn’t yet been finalized, but we can pretty much expect that the time-weighted composite return requirement will remain. At a recent NYSSA (New York Society of Security Analysts) GIPS program, that I had the pleasure to speak at, I asked what might be considered an unfair or trick question: […]
Read MoreWhy are time-weighted returns called time-weighted? Before I answer this question, it might help to explain where the terms “time-weighting” and “time-weighted” come from. It’s not what you may think. No, Peter Dietz, who gave us the “Original Dietz” as well as the “asset-weighted Dietz” (aka, “Modified Dietz”) formulas was not the one who coined this […]
Read More BAI, Bank Administration Institute, time-weightedI recently conducted a software certification for a software vendor. I found some issues with their application of rates of return, and we’ve been going back-and-forth on it. One issue that arose was my belief that money-weighting is the appropriate approach for subportfolio rates of return [I should point out that this isn’t a requirement […]
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Leverage can be a confusing topic, so I figured it is worth covering in a few blog posts. In this first post, we’ll deal with return calculations for portfolios that employ leverage. Leverage is the use of borrowing, typically with an intent to amplify investment gains (and thus, returns). The use of leverage is also […]
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For today’s post, I’d like to review some of the “Dietz-style” formulae we use to calculate true time-weighted return and estimated time-weighted return. I’ve never actually seen the formulae presented this way, but hopefully doing it in this fashion will help candidate see that we are using essentially the same basic formula in all of […]
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CIPM Expert Level candidates must know what return calculations are required by the Global Investment Performance Standards (GIPS(r)), and in which circumstances. Most of the time, time-weighted return (TWR) is required, but in some cases a since inception internal rate of return (SI-IRR) must be used. But what are the specifics? Here is a breakdown: […]
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Most performance analysts have heard it said that we should never annualize returns of less than one year. Some may also be aware that GIPS provision I.5.A.4 (2010 edition of GIPS) forbids compliant firms from annualizing returns for periods of less than a year? But why shouldn’t this be done? Certainly, we could do it […]
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Recently, my boss David Spaulding commented regarding the origin of the term “time-weighted return.” The CIPM curriculum at the Principles Level gives a description as to the origin of the name. Unfortunately, an original source is not cited. But, I remind candidates of this description given in the curriculum, as they are responsible for knowing […]
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