Portfolio Performance

[rupertpage]

I have a portfolio which has return 12.3% over the last 12 months.

I have sold 90% of the holdings and when I withdraw the cash the 1 year yield on the graph falls to 3.21%. I f the cash stays the 1 year yield is 12.3%

When I run a portfolio Performance report the yield is 12.3%

what is happening here ?

[Mark]

Hi rupertpage,

Are all your cash transactions done at a price of 1? Are all closing cash prices at $1? Just selling cash should have almost no impact on your ROI, unless you are selling it at significant difference from market value.

[rupertpage]

No all my cash transactions are always priced at 1.00

So removing the cash from the portfolio changes the investment performance from 12.01% to 5.37% (Return - Time Weighted Return). This is in the Investment Performance report.

If I run the Portfolio Permance report the yield (ie ROI yield is 11.85%). In this case removing the cash changes the yield to 12.06% so this just becomes a timing issue. This is the Portfolio Performance report.

The ROI yields depicted above the graphed portfolio also change from 12.01% to 5.31% when the cash is removed. This the graph of the Portfolio value.

Any idea what is happening here ?

[Mark]

Hi rupertpage,

How about your cash closing prices? You can also turn on TWR yield logging, to debug. If you'd like help, you can make a backup of that portfolio and email it to us, along with some instructions to reproduce, like date range. We can take a look.

[rupertpage]

How do I turn on TWR yield logging ?

Can I save just a sub-porfolio to send you ?

[Mark]

Hi rupertpage,

To turn on yield logging, see "Options / General Preferences... / Yields".

Yes, you can save just a sub-portfolio and send it to us. Select the sub-portfolio in the Portfolio Editor, and use "Edit / Copy". Use "File / Close Portfolio". Under the now empty Master Portfolio, use "Edit / Paste", and then "File / Save Portfolio As..." and finally "File / Backup...". Send us this *.FMB file. Use "File / Open..." to switch back to your original portfolio file.

[rupertpage]

Hi Mark

I have included my RAP portfolio for you to take a look at.
I sold 90% of the holdings on 17th January 2018.
I then removed the cash balance of those sales on the 31st January 2018.
So when I run a portfolio performance report for the last 12months 01feb2017~01feb2018 and again 1 week later 08feb2017~08feb2018. I get a consistent ROI yield
When I run the Investment performance report for the same two 12 month periods I get a very different TW Return for the 2 periods (12.52% for 01feb2017~01feb2018 compared to 5.43% 08feb2017~08feb2018).
Yet if I delete my cash removal sale (ie leave the cash in the portfolio) I get similar returns.
I also note this discrepancy on 1yr ROI yield fo the portfolio above the graph.

thanks Rupert

[rupertpage]

I am attempting to upload the file but I am getting the message "the extension fmb is not allowed"

[Mark]

Hi Rupert,

I've just sent you an email, please send the .FMB file back to that email address instead.

[Mark]

Hi Rupert,

Thanks for sending the data file. The portfolio went down £ 508 in that week from Feb-1-18 to Feb-8-18. If you leave in that sell of cash on Jan-31-18, this £ 508 amounts to 6.4% of your portfolio. If you remove that sell transaction, then you still have a large cash position, so this £ 508 is only 0.5% of your portfolio.

TWR is time weighted only (not money weighted), but ROI is both time and money weighted.

This large % loss in this first week in Feb weighs heavily on TWR. TWR doesn't care how much money you have invested. It sees that your portfolio went down 6.4%, so your TWR is reduced by roughly this amount, even though the amount of money you had invested that week was greatly reduced by your withdrawal of cash. In the case where you delete the cash sell, your % loss is much smaller, so the TWR doesn't go down as much.

ROI is both time and money weighted, so the large loss in that week is weighted much less, since you removed about 94% of your portfolio on Jan-31-18.

For more details, here is a comment on the differences between TWR and ROI from the online help:

ROI Versus TWR Comparison:

To see how well your money has performed, use the ROI yields. To see how well your investment choices have performed, and ignore the timing of external cash flows, use the TWR yields. The TWR yields can be used to compare against other published performance figures, like the returns published by various mutual fund companies. The ROI yields will be the same as the TWR yields if you have no cash flows within a yield term. If you timed your investing well by putting more money in during up periods, and less during down periods, your ROI will be higher than the TWR. Conversely, if you timed your cash flows badly, your ROI will be lower than your TWR.

[rupertpage]

Hi Mark
Thankyou very much for looking in to this for me.

I was aware of the difference between TWR and ROI but I guess I did not comprehend the impact that the combination of a large cash withdrawal and a large market move in that week would have.

It is clearer now. Thankyou.