Presenting Composite Returns Under Global Investment Performance Standards (GIPS)
A composite is a combined account composed of similar portfolios. Composite return is the asset-weighted average return of the individual portfolios in the composite. It must reflect beginning-of-period values and any external cash flows. Each external cash flow is weighted according to the percentage of time held in the portfolio during the measurement period.
Under GIPS, all fee-paying portfolios must be included in at least one composite in order to prevent poorly performing accounts from being excluded. Non-fee paying portfolios can be included if this is appropriately disclosed. Non-discretionary portfolios, however, cannot be included in a composite. A portfolio is considered discretionary if the manager is able to implement the intended strategy. When clients impose restrictions or make frequent external cash flows that impede the investment process, the resulting performance may not accurately reflect the manager’s investment ability.
For more information, see all articles on: Investment Returns, Performance Measurement, Portfolio Management See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
