TWR Total

[ASU]

Hi Mark,

When I am running a TWR either through the custom report or TWR report, what is the total line showing?

Is it showing the average weight of the current holdings and their TWR or the actual TWR of the portfolio.

For example if today investment X is currently 25% of my portfolio, but over the period it varied between 10%-40%, is the total line using the 25% number or the varied number.

I have a portfolio with some poor timed cash flows and as such the ROI is less than the TWR of the benchmark. I want to compare the return to the benchmark as if the portfolio had only one cash flow on day one, but used the actual percentage of holdings over the period.

I believe this is what you see graphically when you do a Portfolio Value graph with the benchmark overlayed. Is that correct?

Thanks

[Mark]

Hi ASU,

The TWR for a sub-portfolio is the actual TWR calculated for that sub-portfolio. It isn't a simple weighted average of the items in the sub-portfolio. The TWR is basically percent gains between external cash flow events, linked together. You can calculate TWR for any object: an investment, asset type, investment goal, symbol, investment type, or sub-portfolio. You can see the equation here:

http://fundmanagersoftware.com/help/yields_twr.html

So, if you want to factor out external cash flows during the yield term, TWR is the right one to use. ROI on the other hand includes the effects of external cash flows. As an example, if you had a portfolio that performed better in the 2nd half of the term, and you had added more money in the 2nd half, the ROI will look better than the TWR, because the ROI money weights the better performance since you had more money invested during that period. Adding the external money will make no impact on the TWR.

I want to compare the return to the benchmark as if the portfolio had only one cash flow on day one, but used the actual percentage of holdings over the period.

I believe this is what you see graphically when you do a Portfolio Value graph with the benchmark overlayed. Is that correct?

This would be the "Price + Distribution" version of the "Graphs / Portfolio/Investment Overlay" graph type. The "Value" version would show all the external cash flows as up/downs on the graph, but not the price version.