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You can set up multiple Performance Calculation reports for different purposes. For example, you can set up a report profile for daily returns for portfolios that have a valuation available every day using a return calculated with a daily returns formula. You can set up a report profile for monthly returns for funds where only a monthly valuation is available, with a return calculated using the Modified Dietz formula.
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The Time Weighted Return measures the performance of the portfolio manager. The amount of funds invested is neutralized in the calculation because contributions and withdrawals by the client are not under the control of the fund manager. The Time Weighted Return over a certain period depends only on the length of this period and not on the amount invested. The return is "time weighted." The returns are calculated by measuring the rate of return for each sub-period between cash flows. The sub-period returns are then linked to form the holding period return.
Example:
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Daily valuations and single-period return calculations are solutions to this problem. However, many firms do not have daily valuations available for all types of entities. Another way to address this problem is to create a special valuation when there are large external cash flows. In Eagle Performance, this is called Significant Cash Flow Processing (SCF). See "Chapter 4: Processing Significant Cash Flows (SCF)" for details.
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The Money Weighted Return reconciles the beginning value and cash contributions with the ending value of the fund. It is an average return of all dollars invested in the portfolio for the period. This type of return calculates the actual return earned on a portfolio, including the impact of the timing of external contributions and withdrawals. The Money Weighted Return is not a good proxy if there are large cash flows or the market is volatile during the measurement period.
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