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This section describes how the single-period return calculator determines composite constituents.
The GIPS weighted average composites in PACE use the entity type ACOM -Performance Composite. When the Monthly Composites options is enabled it includes only those member entities that were in the composite for the entire single-period (daily, monthly, or quarterly) performance calculation. This is generally the rule that firms are following when they calculate returns for GIPS marketing composites.
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Most firms use a whole-month rule for determining what portfolios belong to a composite, that is, they include a portfolio in a composite if the portfolio met the strategy definition for and existed for the entire month. Using this rule, if a fund started in the middle of a month, it would not be included in the composite return calculated for that month. The same rule holds for a portfolio whose strategy changed during the month.
An example is described in the following table.
Composite Entity | Constituent Portfolio Entity Identifiers | Start Date | Entry Reason | Stop Date | Exit Reason |
|---|---|---|---|---|---|
ACOMP2 | SJU1 | 8/1/2009 | New portfolio | 5/1/2014 | Portfolio closed |
ACOMP2 | SJU2 | 1/1/2010 | Composite style change | NULL | |
ACOMP2 | SJU3 | 3/1/2010 | New portfolio | 2/14/2014 | Removed from composite |
Given the relationships between the composite and its constituents, the monthly single-period composite calculations include the constituents described in the following table.
Monthly Period Ending | Member Entities Included in Composite Calculation |
|---|---|
8/31/2009 | SJU1 |
12/31/2009 | SJU1 |
1/31/2010 | SJU1, SJU2 |
3/31/2010 | SJU1, SJU2, SJU3 |
2/29/2014 | SJU1, SJU2 |
5/31/2014 | SJU2 |
The constituents were selected based on the whole-month rule.
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You can also use the system to determine composite membership using a whole-quarter rule. While the calculation profile default is to use a monthly rule, you can set it to instead use a whole-quarter rule. If you use this option the single-period calculator determines the constituent status based on the current quarter the calculation period falls into. It then calculates the composite return for the period using only those constituents that met the inclusion requirements for the composite for the entire quarter. Note that here you are calculating returns on a calendar monthly basis but determining composite membership based on whether the portfolio belongs in the composite for the whole calendar quarter.
An example is described in the following table.
Composite Entity ID | Portfolio Entity ID | Start Date | Entry Reason | Stop Date | Exit Reason |
|---|---|---|---|---|---|
ACOMP2 | SJU1 | 8/1/2009 | New account | 5/1/2000 | Closed account |
ACOMP2 | SJU2 | 1/1/2010 | Portfolio style changed in | NULL | |
ACOMP2 | SJU3 | 3/1/2010 | New account | 2/14/2000 | Portfolio style changed out |
Given this, the monthly calculation periods listed in the following table include the constituent entities because they were in the composite for the whole-quarter that the calculation period fell into.
Monthly Calc Period Ending | Member Entities Included in Composite Calculation |
|---|---|
8/31/2009 | None |
12/31/2009 | SJU1 |
1/31/2010 | SJU1 |
3/31/2010 | SJU1, SJU2 |
4/30/2010 | SJU1, SJU2, SJU3 |
1/31/2014 | SJU1, SJU2 |
Use this option when composite reporting is done based on a quarterly cycle and the requirement is to calculate monthly results at the end of the quarter for the composite based on its membership over the entire quarter.
To calculate returns using the quarterly reporting option, click the option, Quarterly Composites, in the Performance Calculation report profile.
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The Entity windows for Performance Composites allow you to create new Performance Composite Entities in PACE without being forced to define the constituents of the composites. This assists you and implementers of the system who wish to use the front end to create the Performance Composite Entity but populate the constituent history through back-end SQL scripts, and so on.
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In Performance Returns and Composite Weighted Returns calculation reports for GIPS composites, a daily frequency calculation potentially could include a constituent a day earlier than it should. In previous versions, the daily frequency calculation enumeration logic incorrectly added one day to the start date of the calculation period when determining the dates to use for the constituents to include.
For example, if the constituent started in the composite on 2/3/2014, it was included incorrectly in the daily calculation for the composite on 2/3/2014. The calculation start date in this example should be 2/2/2014. The constituent should be included only if it was in the entire period. That means the logic is that it is in if it has a start date in the composite that is prior to or equal to the calculation start date and an end date in the composite that is either null or greater than the calculation end effective date.