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TWR total question

Questions on using, creating, or understanding data in Fund Manager reports.

Postby Djobydjoba » Sun Feb 16, 2020 10:43 am

Hi Mark,

I apply the TWR report to a watchlist sub-portfolio that contains only investments (indexes, ETF, mutual funds) without any transaction recorded.

When List By is set to Investment type / Asset Type / Investment Goal, etc.., the log says some lines can't be calculated:
"Unable to calculate yield for ...... for date range .... - Calculation failed due to <= 0 value"

So Fund Manager can't calculate a TWR total without values. That's OK.

(and it seems it's the same behavior in the Risk/Reward Scatter graph type: when displayed by Investment type / Asset Type / Investment Goal, etc, the log says: "Cannot calculate standard deviation without a positive total value")

So this is a question I have: would it make sense if, in this situation (a watchlist subportfolio without any transactions recorded), FM assigned during the calculation process an arbitrary equal value for each of the investments in the sub-portfolio, in order to compute a TWR (or standard deviation) total?

Maybe my idea makes no sens...
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Postby ricbertsch » Mon Feb 17, 2020 5:25 am

I don't know if this is of any help but we also track Index, Mufual Funds and ETF Performances in Model Portfolios.

-We first obtain the closing price per share from Big Charts for a desired past date. Since we switched over to FM in 2017 we enter the purchase of 1 share at closing price on 12/30/2016

- Enter a buy for 1 share on that date (12/30/16).

- Download historical prices which of course also includes dividends, capital gains and splits.

From there we are able to track performances.
Richard G. Bertsch CFP(tm)
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Postby Mark » Mon Feb 17, 2020 8:40 am

In the case of TWR for a non-investment object you do need to have a > 0 value over the whole yield term. ricbertsch's suggestion works great. You also have control this way over the allocation in the case where you are tracking objects of multiple investments.
Thanks,
Mark
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Postby Djobydjoba » Tue Feb 18, 2020 11:43 am

Let's consider a watch list subportfolio (no transactions recorded) with 5 investments in it. All the investments are assigned to the same sector category "Oil & Gas".

Now we want to track the TWR for the entire "Oil & Gas" sector, let's say for the last 2 years, annualized.

1) What it means, the standard and default way to think of it, is to calculate the TWR for a balanced allocation, where all the 5 investments have the same weight in it. So, at the beginning, each investment with the same market value. What we want is like an average of the TWR for the category. As the first choice this is what we want and what we think about.

Do you guys agree with that?

2) If we populate the investments with a buy for 1 share, in order to calculate the TWR for the entire "Oil & Gas" sector, the calculation is done for an unbalanced allocation. At the beginning, each investment has NOT the same market value because the price of share is obviously not the same for each.
The allocation is not balanced at the beginning, and we don't really control how unbalanced it is.


Before continuing with other ideas, I would like to know if my thinking is correct as of now...
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Postby Mark » Tue Feb 18, 2020 1:28 pm

Hi Djobydjoba,

FM doesn't make any assumptions, you have to enter it the way you want. It may seem intuitive that it could assign equal weights to all investments, but unless you do that (by recording transactions), it won't assume this. You can record a purchase of $1000 (instead of 1 share) in each investment to get an equal value weighting. This gives you the ultimate control, instead of FM trying to guess what you want in a watchlist weighting.
Thanks,
Mark
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Postby Djobydjoba » Wed Feb 19, 2020 12:20 pm

Hi Mark,

Thanks for the clear answer. I think I've understood, so I try some feedback / suggestions.

Yes, the way it works gives full control. But it requires a lot of work to create and modify / maintain transactions, and this aspect makes the entire functionality not flexible, practically.

For example, to calculate the TWR of a category, a transaction has to be created in each investment. This is already a lot of work if the category contains many investments. Moreover, the transactions are only valid for a specific yield period. For example, calculate the TWR of an equal weight allocation with a start date in 2017, and then decide to change a start date to 2018, and all the transactions have to be modified (their dates have to be changed).

Me personally I don't really like the idea of entering permanent transactions for a TWR. I prefer to keep my watchlist with zero values, and reserve transactions only for my accounts. I have more than 1000 investments in my watch lists and I will not manage transactions in them for a TWR for sure.

Could there be a more flexible implementation? Perhaps as part of backtest/optimization functionalities that would allow to simulate an allocation on the fly, without the need to create hard transactions, and would offer to calculate the TWR with the possibility to change the start date of the yield term like we move a slider.

Anyway, just a feedback
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Postby Mark » Wed Feb 19, 2020 1:50 pm

Hello Djobydjoba,

Thanks for the feedback/idea. I understand your point, and see how that could be helpful.
Thanks,
Mark
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Postby Djobydjoba » Thu Feb 20, 2020 11:11 am

Mark wrote:In the case of TWR for a non-investment object you do need to have a > 0 value over the whole yield term

...

It may seem intuitive that it could assign equal weights to all investments, but unless you do that (by recording transactions), it won't assume this.


In short:

- recording transactions is a time consuming process.

- assigning equal weights to all investments is an intuitive way of thinking the TWR of a non-investment object (category, investment type, currency). It's like the average TWR of the investments in this category, investment type, or currency. It is a useful info.


So a suggestion would be, if no value is available for a non-investment object, to offer the calculation of the TWR with equal weights for all investments in this non-investment object. FM would calculate the TWR by adding equal values for each investment at the start date.

This would be useful for the TWR report and the Risk/Reward graph (and perhaps for other locations), as we could have the TWR (or standard deviation) for non-investment objects without having to enter transactions. We would still be free to enter transactions to specify another allocation than equal weights, if wanted.

Maybe this behaviour could be an option, "Presume equal weights for TWR calculation and STD if no value exists", or something like that.
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Postby Mark » Thu Feb 20, 2020 3:25 pm

Hi Djobydjoba,

I understand, thanks. This is something we can think about.
Thanks,
Mark
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