{"id":923,"date":"2016-02-21T14:22:30","date_gmt":"2016-02-21T13:22:30","guid":{"rendered":"http:\/\/bicon.li\/?p=923"},"modified":"2026-02-01T12:49:14","modified_gmt":"2026-02-01T11:49:14","slug":"investment-performance-measurement-on-a-single-investment-position-and-aggregations","status":"publish","type":"post","link":"https:\/\/bicon.li\/en\/2016\/02\/21\/investment-performance-measurement-on-a-single-investment-position-and-aggregations\/","title":{"rendered":"Investment Performance Measurement on a Single Position and Aggregations"},"content":{"rendered":"

Over the past two decades, I\u2019ve worked on numerous projects in the field of investment performance measurement. These have ranged from customizing existing systems to designing solutions from scratch \u2013 covering performance measurement itself as well as the more advanced calculations on \u2013 top, such as contribution, attribution and risk metrics.<\/p>\n\n\n\n

Along the way, I\u2019ve had to dive deep into the literature. The picture shows an excerpt of the books I\u2019ve collected \u2013 and, of course, studied \u2013 while working on investment performance measurement.<\/p>\n\n\n\n

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What astonished me was that across all these books, the performance of a single investment position \u2013 or of any aggregated level (e.g. US equities) \u2013 is treated as a given, without ever explaining how it is actually calculated.<\/p>\n<\/blockquote>\n\n\n\n

Most of the literature I found is full of highly sophisticated methods for attribution or risk measurement, yet it rarely explains the very basics of performance measurement. Since I had to implement these basics several times before I could get to the sophisticated numbers, my only sources were colleagues and practitioners who had already done it.<\/p>\n\n\n\n

That\u2019s why I decided to write this brief introduction to the topic.<\/p>\n\n\n\n

Three typical examples<\/h2>\n\n\n\n

At the portfolio level (which is covered in detail in all books), the key to any performance calculation are the performance cash flows. On a portfolio level these are typically payments or security deliveries which are considered as performance neutral. On a position level things are a bit trickier, as any transaction has one or more performance cash flows with reference to one or more positions.<\/p>\n\n\n\n

1.) Buy Stock<\/h3>\n\n\n\n

I will start with a simple example: purchasing a share.<\/p>\n\n\n\n

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On the left-hand side of the image above, you can see the information that is sent to the customer after the share purchase. To determine the resulting cash flows, it\u2019s easiest to start with the cash account position.<\/p>\n\n\n\n

The first cash flow is always the amount debited from or credited to the account (green). Since a stock buy transaction is purely internal at portfolio level (i.e. there is nothing performance-neutral at portfolio level), the cash flow on the account must be offset by one or more opposing cash flows so that the sum at portfolio level is zero (red).<\/p>\n\n\n\n

In this example, there are three opposing cash flows on the security position (purple): the purchase itself, plus the two transaction-cost components \u2013 the stamp duty and the bank\u2019s trading fee.<\/p>\n\n\n\n

If these resulting cash flows are classified (orange), the performance calculation can provide additional breakdowns such as costs and taxes, reclaimable taxes, fees, dividends, and interest received, and so on.<\/p>\n\n\n\n

It also enables the calculation of gross performance figures, such as:<\/p>\n\n\n\n