From time to time we make available to our clients and to the public certain charts, graphs, and other data that highlight the performance of our model portfolios over various periods of time. When presented, this information is provided “as is” for informational purposes only and is not intended to represent the performance of an actual investment account. Information and data presented were obtained from sources considered reliable and correct, however, we cannot guarantee their accuracy or completeness.
Model portfolio returns are calculated using the same methodology our custodian, Folio Institutional, uses to calculate performance for actual investor accounts—the Mid-Weighted Dietz Method.
The Mid-Weighted Dietz Method is a time-weighted return, which is most useful for comparing performance to a benchmark. Time-weighted returns remove the impact of cash and security movement into or out of a portfolio or account in order to capture the performance of the strategy rather than the timing and size of the cash and security movement. Consequently, these returns are not a measure of the actual profit or loss, or actual cash return of your portfolio or account.
We can display returns with and without fees, therefore, we have two return calculations.
The Mid-Weighted Dietz Method Without Fees:
|Return(R) =||(EMV + EA – (BMV + BA) -CF)|
|BMV + BA + (CF * 0.5)|
- EMV = Ending Market Value. This is the market value of your portfolio at the end of the period to be tested.
- EA = Ending Accrual. This is the total amount of interest and/or dividends that have been accrued at the end of the period and have not yet been paid out to the portfolio.
- BMV = Beginning Market Value. This is the market value of your portfolio at the beginning of the period to be tested.
- BA = Beginning Accrual. This is the total amount of interest and/or dividends that have been accrued at the beginning of the period and have not yet been paid out to the portfolio.
- CF = Total Cash Flows During the Period. Inflows of cash are treated as a positive number, while outflows are treated as a negative number.
- R = Total Return for the Day. After the Mid-Weighted Dietz Calculation, this number is then used in the Unit Value calculation.
The Mid-Weighted Dietz Method With Fees:
|Return(R) =||(EMV + EA – (BMV + BA) -(CF + F)|
|BMV + BA + (CF + F) * 0.5|
- F = Fees. This is the total amount of fees that have been accrued or withdrawn from the account or portfolio. Fees are defined as transactions, such as wire transfer fees, and ADR fees. Trade commissions and SRO fees are part of the cost of a transaction, and are therefore included in both return calculations.
At launch, each model portfolio has a hypothetical market value, which then changes over time based on the changing value of the underlying holdings. Corporate actions such as dividends, splits, spin-offs, etc., are processed in the same fashion as for actual investor accounts, with hypothetical money and shares exchanged rather than real dollars or shares. Model corporate actions are not validated or audited, which may result in errors in the performance results presented. Cash distributions (i.e., dividends, capital gains, returns of capital) earned in a model portfolio are automatically reinvested into the securities that paid them.
When model portfolios are rebalanced, buys and sells are calculated to return the model portfolio to its target weights—these hypothetical transactions assume a full execution of the shares needed at the closing prices on the day of rebalance. When the buys and sells cannot be offset exactly the resulting cash difference is hypothetically invested into cash. In most cases, this cash investment is a negligible portion of the model and will be hypothetically invested in the model holdings (if possible) in the next rebalance.
Model Portfolio Performance Reporting has inherent limitations. Any results discussed herein are model results only and do not represent the results of actual trading of investor assets. The performance shown or discussed does not reflect the impact that material economic and market factors had or might have had on decision making if actual investor money had been managed.
While model performance may have performed better than comparative benchmarks for some or all of the periods shown, the performance during any other period may not have, and there is no assurance that model performance will perform better than comparative benchmarks in the future.
Actual investor accounts managed by an advisor may be based on the model portfolio discussed, but the actual composition and performance of the account may differ from those of the model portfolio due to differences in the timing and prices of trades, and the identity and weightings of securities holdings.
The model performance does not consider taxes, brokerage charges, or custodial fees, nor does it reflect the deduction of any advisory fees charged when actual investor accounts are managed in accordance with the model. The imposition of these fees and charges would cause actual performance to be lower than the performance shown. For example, if the model returned 10 percent on a $100,000 investment for a 12-month period (or $10,000) and an annual asset-based fee of 1.5 percent were imposed at the end of the period (or $1,650), the net return would be 8.35 percent (or $8,350) for the year. Over 3 years, an annual 1.5 percent fee taken at year end with an assumed 10 percent return per year would result in a cumulative gross return of 33.1 percent, a total fee of $5,375 and a cumulative net return of 27.2 percent (or $27,200). Fees deducted on a frequency other than annual would result in a different cumulative net return in the preceding example.
Performance reporting is based on the model’s tracking portfolio, which does not constitute a composite for purposes of GIPS reporting. Past performance is not a guarantee of future returns.
Benchmark Disclosure: Benchmarks indexes are unmanaged, statistical composites and their returns do not reflect payment of any brokerage commissions or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in a benchmark index. Benchmark indexes may include a different number of securities and have potentially different risk characteristics than the model portfolios to which they are being compared. Past performance of a benchmark index is no indication of future returns.