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Archive | Rates of Return

Split the EAFE for better returns?

The MSCI EAFE Index is arguably the most popular international index on the block. Many active fund managers’ returns are benchmarked to this index (and the majority of them fail to outperform it).  Couch potato investors also tend to allocate a portion of their portfolios to ETFs that track the MSCI EAFE or a similar […]

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How to Calculate Your Approximate Time-Weighted Rate of Return (ATWRR)

In my recent blog post, I explained that the Modified Dietz rate of return gives a decent estimate of the money-weighted rate of return (MWRR).  However, both types of returns are not ideal choices for investors who are interested in benchmarking their performance against appropriate indices. Some investment firms mitigate this issue by approximating a […]

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How to Calculate Your Modified Dietz Rate of Return (ModDietz)

The Modified Dietz rate of return attempts to estimate a money-weighted rate of return (MWRR) by weighting each cash flow by the proportion of the measurement period it is present or absent from the portfolio. Similar to the money-weighted rate of return, the calculation requires the investor to know the portfolio values at the start […]

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How to Calculate your Money-Weighted Rate of Return (MWRR)

Starting in July 2016, dealers and portfolio advisors will be required to report investment performance to their clients.  The money-weighted rate of return (MWRR) was chosen by the Canadian Securities Administrators (CSA) as the industry standard for these performance calculations.  Although the MWRR is arguably more relevant to the individual investor (as it can reward […]

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How to Calculate Your Time-Weighted Rate of Return (TWRR)

The Holy Grail of portfolio performance benchmarking is the time-weighted rate of return (TWRR).  However, it requires daily portfolio valuations whenever an external cash flow (i.e. a contribution or withdrawal) occurs.  Periods in which external cash flows occur are divided into sub-periods, each with its own total return calculation.  These sub-period returns are then geometrically […]

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How to Calculate Your Portfolio’s Rate of Return

Starting in July 2016, dealers and advisors will be required to provide a personal rate of return to their clients.  Although this disclosure is a step in the right direction, it will likely lead to more confusion and frustration amongst clients and advisors if the results are not properly explained.  There are various ways to calculate a rate of […]

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How to Calculate your Average Annual Rate of Return

With Phase II of the Client Relationship Model (CRM II) fast approaching, Canadian investors will likely be on their own when trying to make sense of their reported rates of return (which will generally be meaningless for benchmarking purposes).  The Modified Dietz rate of return calculator (available in the Calculators section of the blog) continues […]

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Money-Weighted vs. Time-Weighted Rates of Return

Investment performance has always been a touchy subject for the financial industry. Portfolio rates of return are rarely disclosed, and investors are often left in the dark on how they are actually doing. Phase II of the Client Relationship Model (CRM II) is about to change all of that. Starting in July 2016, dealers and […]

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