Performance
Performance
can be calculated for any time period during the lifetime of portfolios. Performance can also be
calculated for a group of portfolios
for group performance. Performance by individual securities and also by asset classes can also be
calculated. The returns generated by portfolios over the life of those portfolios can be calculated
by two performance calculation methodologies,
namely, Internal Rate of Return (IRR), and Time Weighted Return (TWR).
Internal
Rate of Return performance calculation takes into consideration the cash flows going in and out of
portfolios. IRR can be calculated by
using two methodologies, namely, Average Capital Base (ACB) and Discounted Cash Flow (DCF). Under
ACB methodology the Modified Dietz method is used where the weighted average of each cash flow is
calculated by taking into consideration
the number of days each cash flow is in the period vis a vis the total number of days in the
period. DCF uses Newton's Method to calculate the rate of return.
Time
Weighted Return performance calculation does not take into consideration the cash flows going in
and out of the portfolios. Whenever there are
cash flows in and out of portfolios within the total time period, this total time period is broken
on the dates of each cash flow into several sub-time periods. Each sub-time period would then have
no cash flow at all. Returns are
calculated for each sub-time period. Returns for all sub-time periods are linked together to arrive
at the return for the total time period.