I asked our client if these segment returns were to:
a) represent these sub-strategies as being independent, so as to suggest that this is how they would have done had they been managed separately (e.g., a U.S. growth strategy, a U.S value strategy), or
b) show how each segment did as part of the portfolio (e.g., this is how the U.S. growth stocks did, this is how the U.S. value stocks did)?
They said that the latter applied. That is, not to hold the results out as if this is what would have been obtained by managing separate strategies, but rather to show how the different components of the portfolio performed.
This seemed to make sense, given that there were times when there would be only a single security in the segment (and at times, no securities), which I think unlikely for a separately managed strategy.
Therefore, in my view, to include cash would muddy the results. While our client referred to the cash inclusion as being a “cash drag,” of course there would be times when cash might actually boost performance (think 2008, 2009).
Regardless, if, as a client, I’m interested in knowing how components of my portfolio did, I wouldn’t want the inclusion of something else that would alter the results. Make sense?