Evaluating the Performance of Alternative Investments
Investments in alternative investment strategies have grown significantly since the 1990’s as investors seek performance with higher return potential than available from traditional asset classes. These assets are an important component of future investment portfolios. However, the strategies are more complex and difficult to evaluate.
Mutual Fund Investor Performance Variance Factors
There are a wide range of reasons for an investor in a mutual fund to receive performance that differs from published mutual fund performance. Both taxable and non-taxable fund investors can receive different realized performance from a mutual fund dependent upon factors unique to the investor. This paper reviews the key reasons why the actual performance received by mutual fund shareholders can differ from the published fund performance.
Understanding Total Portfolio and Portfolio Component Return Relationships
When there are significant cash flows resulting in intra-period component reallocations, the estimated weighted total portfolio return can differ significantly from the weighted average return. This paper examines the sources and magnitude of this error. The results show that the error is significant when there are significant cash flows, return volatility and a low correlation between component returns. It also illustrates which estimation approach is more accurate for estimating total portfolio money-weighted returns and time-weighted returns.
Which Return is Right for You?: TWR vs. MWR
There are two primary portfolio return measures available to investors to better evaluate investment success. This paper explains the use of time-weighted and money-weighted returns. Several factors are considered when selecting the appropriate return measure to use including: purpose (what or who is being measured), benchmarks, cash flow control, liquidity, computational considerations and report availability.