A family member of mine runs a small portfolio “fund” with 15 stocks which he has been holding for a few years now (a few 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 (informal verification)!
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.
Any ideas about what else I can check to comply to some industry standard without going full GIPS! …. any input would be appreciated, thanks.
Hey broadex1, I'm the WSO Monkey Bot...do any of these help:
No promises, but maybe one of our professional members will share their wisdom: Reaganjr @acura45" coreytrevor
You're welcome.
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.
The method you described would only approximate portfolio return if the 15 stocks were equally weighted in terms of value?
The easiest method I think you could check his return calculation is to take the year end portfolio value less any cash contributions add any cash withdrawals. Once you have that number, divide it by the year start portfolio value. That should give you a rough indication of return adjusted for any contributions and withdrawals
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.
Thanks
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