Fundamentals of Performance Measurement – PLUS
Module 2 – Rates of Return (continued) & Benchmarks
Virtual learning classes, approximately 4 hours each
Module 2: ROR (continued) & Benchmarks
- We will review of examples where returns “don’t make sense,” and explain why this is the case, as well as why, in reality, they do (or don’t).
- We will spend time going into greater depth on the IRR.
- We discuss how to calculate gross- and net-of-fee returns, whether the fees are extracted from the account or paid separately.
- We will discuss the two main approaches to derive returns at the subportfolio level.
- We will discuss income accruals, for both interest and dividends. We will address why we accrue as well as how accruals are handled. We will provide examples of both.
- We will go over the different approaches to handle cash flows, and the impact they may have on the accuracy and appropriateness of the resulting returns.
BENCHMARKS: Gain the insights into the primary performance measurement benchmarks (indexes, peer groups, absolute, and custom) and the importance of each.
- We will review the general criteria used to assess benchmarks.
- We will discuss the various approaches to create market indexes, including the different approaches to weighting the underlying securities, as well as how to blend them.
- We will discuss the effects of turnover on indexes, the impact of security or sector concentration, and other concepts.
- We will discuss the benefits and shortcomings of peer groups, to include survivorship bias.
- We will spend time discussing absolute benchmarks, why and when they’re appropriate, as well as they’re advantages and disadvantages.
- We will discuss custom benchmarks and review an approach to create them.