Investment performance
Encyclopedia
Investment performance is the return
on an investment portfolio. The investment portfolio can contain a single asset or multiple assets. The investment performance is measured over a specific period of time and in a specific currency.
Investors often distinguish different types of return. One is the distinction between the total return
and the price return
, where the former takes into account income (interest
and dividend
s), whereas the latter only takes into account capital appreciation.
Another distinction is between net and gross return. The 'pure' net return to the investor is the return net of all fees, expenses, and taxes, whereas the 'pure' gross return is the return before all fees, expenses, and taxes. Various variations between these two extremes exist. Which return one looks at depends on what one is trying to measure. For example, if one wishes to measure the ability of an investment manager to add value, then the return net of transaction expenses, but gross of all other fees, expenses, and taxes is an appropriate measure to look at since fees, expenses, and taxes other than transaction expenses are often outside the control of the investment manager.
Another important distinction is between the money-weighted return and the time-weighted return
. The former is appropriate if the manager determines the timing of inflows in or outflows from the portfolio. The latter is appropriate when the manager is not responsible for the timing of cash inflows into and cash outflows from the portfolio.
Returns (economics)
Returns, in economics and political economy, are the distributions or payments awarded to the various suppliers of the factors of production.-Wages:...
on an investment portfolio. The investment portfolio can contain a single asset or multiple assets. The investment performance is measured over a specific period of time and in a specific currency.
Investors often distinguish different types of return. One is the distinction between the total return
Total return
The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees...
and the price return
Price return
The price return is the rate of return on an investment portfolio, where the return measure takes into account only the capital appreciation of the portfolio, while the income generated by the assets in the portfolio, in the form of interest and dividends, is ignored...
, where the former takes into account income (interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
and dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s), whereas the latter only takes into account capital appreciation.
Another distinction is between net and gross return. The 'pure' net return to the investor is the return net of all fees, expenses, and taxes, whereas the 'pure' gross return is the return before all fees, expenses, and taxes. Various variations between these two extremes exist. Which return one looks at depends on what one is trying to measure. For example, if one wishes to measure the ability of an investment manager to add value, then the return net of transaction expenses, but gross of all other fees, expenses, and taxes is an appropriate measure to look at since fees, expenses, and taxes other than transaction expenses are often outside the control of the investment manager.
Another important distinction is between the money-weighted return and the time-weighted return
True time-weighted rate of return
True Time-Weighted Rate of Return is a way to measure the performance of an investing portfolio in the presence of external cash flows. It determines the return for an investor who has not invested any additional cash flows during the investment period:...
. The former is appropriate if the manager determines the timing of inflows in or outflows from the portfolio. The latter is appropriate when the manager is not responsible for the timing of cash inflows into and cash outflows from the portfolio.
See also
- Absolute investment performance, Absolute returnAbsolute returnThe absolute return or simply return is a measure of the gain or loss on an investment portfolio expressed as a percentage of invested capital. The adjective absolute is used to stress the distinction with the relative return measures often used by long-only equity funds, i.e...
- Modified Dietz MethodModified Dietz MethodThe Modified Dietz Method is a calculation used to determine an approximation of the performance of an investment portfolio based on money-weighted cash flow...
- Money-weighted return
- Relative returnRelative returnRelative return is a measure of the return of an investment portfolio relative to a theoretical passive reference portfolio or benchmark.In active portfolio management, the aim is to maximize the relative return...
- Simple Dietz MethodSimple Dietz MethodSimple Dietz Method is a means of calculating an approximation of investment portfolio performance during a period of external cash flows into/out of the portfolio...
- True Time-Weighted Rate of ReturnTrue time-weighted rate of returnTrue Time-Weighted Rate of Return is a way to measure the performance of an investing portfolio in the presence of external cash flows. It determines the return for an investor who has not invested any additional cash flows during the investment period:...