Measuring / Comparing Portfolio Performance

It should not be a mystery.

So you requested that your advisor (or their assistant) send you a portfolio summary (hopefully consolidating all of your "household" accounts) and it includes a "Monthly Equity Growth Graph", something like this sample portfolio:

(click on the graph to enlarge if you wish)

The rates of return in this particular situation are as of May 24, so for comparison purposes you want to pick your benchmark return dates to match the return dates on the chart.

The longer term "annualized rate of return since inception" (from September 13, 2012) should be matched with benchmark returns from the indexes you choose for the same dates.

For our purposes we use the MSCI All Country World Index (ACWI) for equity assets (2500 companies from 23 developed countries and 23 developing countries) and the Canadian Bond Index (XBB).

• From September 13, 2012 to May 24, 2106, the ACWI had a total return (including dividends re-invested) of 6.87%, annualized (source: Bloomberg TRA, daily).

• For the same dates, XBB had a total return of 3.55%, annualized (source: Bloomberg TRA, daily).

If you have a 60% equity and 40% fixed income portfolio:

• 60% of 6.87% = 4.12%
• 40% of 3.55% = 1.42%
• Total Return of the benchmark 60% ACWI / 40% XBB = 5.54%
• Don't forget to allow for fees / costs, say 1.0% for example.
• For comparison purposes, the portfolio rate of return of 7.70% (after fees) "beat" the benchmark of 4.54% (after fees) over the same period.

For the 1 year period (May 22, 2015 to May 24, 2016):

• 60% of - 7.65% (ACWI, source Bloomberg TRA, daily) = -4.59%
• 40% of  3.17% (XBB, source Bloomberg TRA, daily) = 1.27%
• Total 60/40 benchmark return = - 3.32% 

For comparison purposes, the portfolio rate of return of -0.37% (after fees) "beat" the benchmark of -4.32% (after fees) over the same period.

I hope that this helps you all to be able to determine how your portfolios are doing and... to justify the fees that you are being charged. Need help, let me know.

And...as a reminder: historical performance is in no way a guarantee of future performance. Although at High Rock we do work our butts off to try to get the best risk-adjusted returns that we possibly can because we invest our money in the same models as our clients. 

Feedback always appreciated...

scott@highrockcapital.ca

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