Effective Return of Portfolio Positions

$25.00

Effective return is appropriate for reporting returns for portfolio positions in a monthly portfolio statement, or similar applications. The aim is to resolve problems that can occur with existing return methods when cash flows into or out of positions occur during the month. Effective return is a money-weighted return, like IRR or Modified Dietz. A key distinction is that effective return is not specifically a monthly return but instead simply relates the income on a position (realized and unrealized) to the capital allocated to that position, regardless of the fraction of the month the position was held. We believe that investors may find this method more informative, avoiding the misleading returns that can sometimes result with existing methods.

 “Effective return,”  is appropriate for reporting returns for portfolio positions in a monthly portfolio statement, or similar applications. The aim is to resolve problems that can occur with existing return methods when cash flows into or out of positions occur during the month. Effective return is a money-weighted return, like IRR or Modified Dietz. A key distinction is that effective return is not specifically a monthly return but instead simply relates the income on a position (realized and unrealized) to the capital allocated to that position, regardless of the fraction of the month the position was held. We believe that investors may find this method more informative, avoiding the misleading returns that can sometimes result with existing methods.

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