Performance Measurement: Introduction

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The Nematrian website differentiates between fund-level performance measurement calculations, explained in these pages, and stock, sector and factor level performance attribution calculations described elsewhere in the Nematrian website.


An important part of the stewardship of assets is to demonstrate that the performance achieved on them is adequate, i.e. suitably good relative to a benchmark. In these pages we explain how portfolio-level returns (for both funds and benchmarks) may be derived and what tools the Nematrian website offers to facilitate the relevant calculations.


Fund-level performance measurement can be subdivided between:


(a)    Cases where individual period fund and benchmark performances are already known. This might include cases where we want to characterise how a particular fund has performed in relation to some specified peer group or to determine some deemed aggregate performance of a composite of different funds; and


(b)   Cases where we need to calculate the individual period returns from underlying accounting data. We will generally then require high quality accounting and/or instrument characteristic data because even a single missed income or expenditure item or a single inaccurate instrument valuation can introduce errors that are large relative to the difference between the overall fund return and the overall benchmark return. Indeed, we could argue that performance measurement provides a way of checking the reliability of the underlying fund accounting processes (and of defining the level of granularity needed for these accounting processes to work effectively). Only if the relative return derived from the accounting data is plausible is this data likely to be correct.


A summary of the mathematics involved in calculating fund (and benchmark and relative) returns is set out here.


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