Reading 43, Q17, in response to the question “What is the difference between using a return metric and using a dollar metric?” CFAI says: “A return metric implies that fund returns are used at the level of the individual management account to allow an analysis of the fund sponsor’s decisions regarding manager selection. A dollar-metric approach uses account valuation and external cash flow data to calculate rates of return and also to compute the dollar impacts of the fund sponsor’s investment policy decision making.” WTF? Anybody have any idea what that’s supposed to mean?
return metric would be tools used to assess manager performance that are not based on DOLLARS or directly relates to monetary performance i.e information ratio ,tracking error etc Dollar Metric wd be assessing a managers ability based on TWR , MWR …atleast that is what i understood
i disagree. I think they key difference is one thing you lose 5% another you lose 100,000,000Million - these are different things. I also thing that since fund sponsor controls cashflows, they can account for cashflows and dont have to use mod dietz to remove external cashflow effect
From what little sense I could make of CFA’s gibberish on this point, it seems like the “return metric” is the apporpriate measure for making manager continuation decisions, whereas the “dollar metric” is most appropriate for macro attribution, where the sponsor is evaluating its own performance, including timing and amount of various cash flows in and out of asset classes and managers.