Eagle Performance allows you to implement the return methodology that is most appropriate for your requirements. Core calculations include:
Time Weighted
Money Weighted
Any period
After tax
Flexible flow weighting, grouping
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:
Beginning value is $1000
Value at the end of the day on the 14th is $1050
Contribution on the 15th of the month is $100
Ending value is $1200
R=EMV+1BMV+1+CF-1*100
R1=5%=10501000+0-1*100
R2=4.3%=12001050+100-1*100
To calculate the 1 month return, you link the sub-period returns, shown below:
R=1+R1*1+R2-1*100
9.56%=1+.05*1+.043-1*100
Where:
R is return
EMV is ending market value
BMV is beginning market value
I is income
CF is cash flow
A "True" Time Weighted Return requires re-valuing the portfolio each time a net contribution occurs. If the portfolio does not include the cash position, then every buy and sell decision creates a cash flow in the portfolio. Thus, the portfolio has to be re-valued every time a transaction takes place.
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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 Process Significant Cash Flows (SCF)" for details.
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