curriculum vol 6 page 304 says in the blue box that when a portfolio is to be switched to a new composite then its historical performance must remain with appropriate composite… then 4 lines below in the text it says historical performance must remain with original composite… which is it? if i change composites due to change of investment strategy then historical performance of portfolio will remain with original composite which is not applicable anymore?? thanks in advance…
If the portfolio changes its investment approach or style, it must be taken out of the current composite and its performance stays. The new composite will have the performance of the portfolio without the history since it doesn’t match the composite’s investment strategy.
I don’t get your question: In both cases the history must remain with the original composite. You say so yourself. You must not discard or wish away a composite simply because it has not performed well in the past for you . You can add disclosures that it is discontinued and any existing retained strategies are now moved to a new composite ( for new results only , not the original results). If you can move portfolios between composites at will , managers will simply attempt to mix and match strategies after the fact , just to look good. The intent is clearly to leave results as they are up to the point of any change . New results only should be included in new composites
can composites be reopend retroactively?
Retroactively changing the historical data is a violation in GIPS. Terminated compistes has to stay in the list for at leas 5 years.
In other words, a terminated compiste can stay in the list for more than 5 years…GIPS standards does not cover the reopened composites.
Reading 6, page 331, blue box about ‘Implementation’.
Could anyone confirm my understanding is correct?
Assume a client has invested in a portfolio, part of composite A.
On Feb 15, there are changes in client’s guidelines, the portfolio must be switched to another composite B.
Such portfolio remains part of composite A until Jan 31, then part of composite B as of Feb 1.
I agree the historical performance remains with composite A until Jan 31. As for when to include to Composite B, it should be Mar 1, based on the policy:
“…shall be added to the appropriate new composite at the beginning of the calendar month following the date on which the portfolio is substantially invested”.
If on Feb 15 the portfolio has to be restructured and will take some time to invest substantially into the new strategy, the earliest to recognise in Composite B will be Mar 1.