Have a question regarding performance measurement. A family member is running a small portfolio “fund” with 15 stocks which he has been holding for a few years now (a few stock additions/subtractions but largely unchanged). He has published some performance numbers for marketing to friends and family; and has asked me to just check his numbers for accuracy. I must admit I’m not a verification expert!

He gets total return numbers from Bloomberg for each stock for the year and computes average return for the portfolio for the year by adding the 15-total return % dividend by 15 stocks. A very simplistic computation. He regularly adds more cash and a few withdrawals, and dividends are reinvested. No rebalancing done though the weightings are well spread between the 15 stocks.

Any ideas about what else I can check this without having to go “GIPS” way!. In addition, is there any way of downloading Bloomberg last price plus dividends into excel to rework total return – or simply using Bloomberg published total return numbers is enough.

Well I think first and foremost a time weighted return metric should be used in concordance with best practice, ie geometric return over the “few years” you are referring to. This is considering you mentioned there are additions of cash and withdrawals involved. However, you should know this as a CFA charter holder

Thanks for your reply. I understand the weighted return computations and linking them geometrically but my problem is:

He has about 50 or so clients all holding those 15 stocks portfolio. This is not a fund per se but each investor holds direct shares in the 15 stocks. Each investor adding /withdrawing cash at different times. When a new investor comes, say adds $15k, the cash is split equally into 15 stocks of $1k investment and rebalancing done annually.

The investment manager has prepared a brochure on the performance on the 15-stocks portfolio (which he called “XX high growth stocks portfolio”) which is each share’s total annual return (from Bloomberg) and average of the 15 stocks. The basis of this workings is that he does not control external cash flows and hence no need to time-weight the returns.

First thing to say is that the methodology your family member is using is very far from GIPS best practice!

I suggest you aim to do minimum quarterly returns using the formula above. Monthly would be better. The multiply all the monthly returns to get the total.

So you’ll need start and end values for the portfolio for each period, start and end share prices factoring in dividends and the full cashflow history.

From what you’ve said in your previous post, that could take some time. If he/she was to hire a third party to calculate it and verify it’d cost in the thousands.