OOP Historical %Gain seems wrong for L/S subportfolio

[investor425]

Hi Mark,

In the portfolio editor I have a list of subportfolios.

The columns defined in the portfolio editor, are (among others):
- Value
- OOP Historical Basis
- OOP Historical Gain
- OOP Historical %Gain

For all the subportfolios, the OOP Historical %Gain is correctly computing the ratio (OOP Historical Gain/OOP Historical Basis) as it should…

… except for one subportfolio, where the calculation doesn’t seem correct.

The subportfolio in question is a Long/Short market neutral, leveraged, subportfolio. It’s the only subportfolio which has both long and short positions, and is a bit leveraged. The calculation of OOP Historical %Gain seems to be off in only this subportfolio.

In the entry for this subportfolio under the OOP Historical %Gain column, it is showing -2%.

But if you manually divide the value it shows in the OOP Historical Gain column by the value it shows in the OOP Historical Basis column, the division comes to -6.7%.

The OOP Historical Basis column is a large positive $ amount, and the OOP Historical Gain column is a relatively small negative $ amount. Both those $amounts seem correct.

It's only the resulting OOP Historical %Gain calculation which seems to be wrong.

If I had to venture a guess, I would say it seems to be dividing the $ OOP Historical Gain by the sum of the absolute values of the long side positions, the short side positions, and the cash position, rather than just dividing by the OOP Historical Basis of the subportfolio, like it should.

Would it be possible to please advise?

Thanks very much!

[Mark]

Hi investor425,

Short positions complicate these calculations. As documented here, selling short will be treated as a "purchase" in the %Gain calculation. Take an example:

1) Assume you sold short 1,000 shares for $100,000 at a price of $100
2) The price decreases from $100 to $95. It went down by 5%, so you really gained 5% since you were holding a short position.

Your historical cost basis will be reported as -$100,000, because you've taken out $100,000. Your gain is $5,000, and your %Gain is 5% (not -5%).

The same calculation method is used at the portfolio level, just summing up all these numbers from individual investments.

[investor425]

Hi Mark,

Thanks for replying.

Does that mean when there are short positions involved, the OOP Historical %Gain is not equal to (OOP Historical Gain / OOP Historical Basis) ?

To show you the actual numbers FundManager is showing for this model subportfolio:

- OOP Historical Gain: -$25,252
- OOP Historical Basis: $377,477

(-$25,252 / $377,477) * 100 = -6.7%

But the OOP Historical %Gain is showing only -2%.

In any case, if I have a subportfolio which includes long positions, short positions and cash, how can I get a %age profit/loss figure relative to the subportfolio's historical basis?

I just need some way to see how much that subportfolio has made or lost as a percentage of it's historical basis.

Is there perhaps some way you might recommend which will show that?

Thanks very much!

[Mark]

Hi investor425,

In the case where you have short positions the "%Gain (inception)" will not be equal to "Gain (inception)" / "Out of pocket basis (inception)". This is because of what I described before, in how the short positions are treated. If you do want to always just do a simple division calculation to know this number, you can create a user-defined field in the Custom report using the equation:

100.0*Gain_end/OOPbasis_end

[investor425]

thank you, that worked.
Really appreciate your great support!