Performance Reporting

Performance Reporting — Reporting & Communication

Core Concepts

Return Reporting

Accurate and consistent return calculation is the foundation of all performance reporting.

Period returns: Report standard time periods — MTD (month-to-date), QTD (quarter-to-date), YTD (year-to-date), 1Y, 3Y, 5Y, 10Y, and since inception. Always state the exact inception date.

Cumulative vs annualized: Annualize returns only for periods greater than 1 year. Annualizing a 3-month return is misleading because it implies the rate is sustainable for a full year. For periods under 1 year, report cumulative (total) returns only.

• Annualized return formula: (1 + cumulative_return)^(1/years) - 1
• For multi-year periods, always present both cumulative and annualized figures so the reader can see total wealth growth and the rate of compounding.

Gross vs net of fees: Always specify whether returns are gross or net of management fees, advisory fees, and transaction costs. Net-of-fee returns are what the investor actually experiences and should be the primary presentation. If showing gross returns, also show the fee drag.

GIPS (Global Investment Performance Standards): For institutional reporting, follow GIPS requirements — composite construction, full disclosure, verified calculations, and standardized presentation. Even for non-GIPS reports, the principles of fair representation and full disclosure apply.

Time-weighted vs money-weighted returns:

• Time-weighted return (TWR) removes the impact of cash flows — use for evaluating the investment manager's skill.
• Money-weighted return (MWR / IRR) reflects the investor's actual experience including timing of contributions and withdrawals — use for evaluating the investor's outcome.

Calculation Engines

scripts/performance_reporting.py implements the return calculations behind these reports:

• Modified Dietz (`ModifiedDietz`): approximates TWR by weighting each external cash flow by the fraction of the period it was invested: R = (V_end - V_start - sum(CF)) / (V_start + sum(w_i * CF_i)), with w_i = (D - d_i)/D. A GIPS-acceptable approximation when daily valuations are unavailable.
• True TWR (`TimeWeightedReturn`): chain-links sub-period returns, prod(1 + r_t) - 1, with an annualization helper that refuses periods under 1 year.
• IRR / MWR (`MoneyWeightedReturn`): solves NPV(rate) = 0 numerically using Brent's root-finding method (scipy.optimize.brentq) over a bracketing interval, returning the annual money-weighted return.
• GIPS composites (`CompositeReturn`): asset-weighted composite return using beginning-of-period values as weights, plus equal-weighted return and the asset-weighted internal dispersion GIPS requires for composites with 6+ portfolios.
• Standard periods (`PeriodReturns`): MTD/QTD/YTD-style trailing windows (1M through 10Y) and inception-to-date from a daily return series, annualizing only periods of 1 year or more.

Benchmark Comparison

A return number in isolation is meaningless. Context requires a benchmark.

Appropriate benchmark selection: The benchmark must match the portfolio's investment style, geography, capitalization, and asset class mix. A US large-cap equity portfolio should be compared to the S&P 500 or Russell 1000, not the MSCI Emerging Markets Index.

• For multi-asset portfolios, use a blended benchmark (e.g., 60% S&P 500 / 40% Bloomberg Aggregate).
• The benchmark should be investable — the investor could have held it as a passive alternative.
• Document the benchmark rationale and keep it consistent over time to avoid cherry-picking.

Active return (alpha): Portfolio return minus benchmark return. Positive alpha indicates outperformance; negative alpha indicates underperformance.

Tracking error and information ratio: For definitions and computation, see performance-metrics. In reports, present these alongside active return so the reader can judge how consistently outperformance was achieved.

Risk Dashboard

Complement return reporting with risk metrics to give a complete picture. For definitions and computation of these metrics (volatility, VaR, drawdown, etc.), see historical-risk.

Current snapshot metrics:

• Annualized volatility
• Maximum drawdown and current drawdown
• Value at Risk (VaR) at 95% and 99% confidence levels
• Beta relative to the benchmark

Rolling metrics: Show how risk evolves over time, not just a point-in-time estimate.

• 12-month rolling Sharpe ratio
• 12-month rolling volatility
• 36-month rolling beta
• Rolling drawdown chart

Risk exposure breakdown:

• Sector concentration and weights vs benchmark
• Factor exposures (value, growth, momentum, quality, size)
• Geographic allocation
• Duration and credit quality (for fixed income)

Attribution Summary

Explain why the portfolio outperformed or underperformed.

Brinson attribution (allocation, selection, interaction) and factor decomposition: For methodology and formulas, see performance-attribution. In a report, summarize each effect in one plain-language sentence (e.g., "sector weighting added 0.2%, stock selection added 0.4%").

Top/bottom contributors (holdings-level):

• List the 5-10 holdings that contributed most positively and most negatively to portfolio returns.
• Show both the return of the holding and its contribution to total portfolio return (weight x return).
• Provide brief commentary on why each top/bottom contributor performed as it did.

Goal Progress Tracking

For goal-based investors, frame performance in terms of progress toward their specific objectives.

On-track assessment: Is the portfolio on track, behind, or ahead relative to the financial plan?

Probability of success: Use Monte Carlo simulation to estimate the probability of reaching the goal given current assets, savings rate, time horizon, and expected return/risk assumptions. Express as a percentage (e.g., "82% probability of funding retirement at age 65").

Projected vs required return: Compare the return needed to reach the goal with the expected return of the current portfolio. If the required return exceeds what is reasonable, flag this as a planning gap.

Milestone tracking: Express progress as percentage of goal funded. For example: "Retirement goal: $2,000,000. Current portfolio: $850,000. 42.5% funded with 15 years remaining."

Visualization Best Practices

Charts communicate faster than tables. Choose the right chart for the message.

Growth of $10,000 chart: Shows cumulative wealth growth of portfolio vs benchmark over time. Intuitive for all audiences. Use log scale for long time periods to avoid visual distortion from compounding.

Rolling return chart: Shows trailing 12-month or 36-month returns over time. Reveals consistency and regime changes. More informative than a single annualized number.

Drawdown chart: Shows peak-to-trough declines over time. Viscerally communicates risk in a way that volatility numbers cannot.

Asset allocation pie/bar chart: Current allocation vs target/benchmark. Use a grouped bar chart to show both side by side.

Risk-return scatter plot: Plot portfolio and benchmark (and possibly peer group) on an annualized return vs annualized volatility plane. Positions in the upper-left (high return, low risk) are desirable.

Report Frequency and Structure

• Monthly brief: 1-page summary — headline return, benchmark comparison, major attribution drivers, any notable events.
• Quarterly detailed: 3-5 pages — full return table, attribution, risk dashboard, goal progress, market commentary, and outlook.
• Annual comprehensive: 8-15 pages — everything in the quarterly report plus year-in-review, tax reporting summary, planning updates, and IPS review.

Plain Language Communication

The most important reporting skill is translating numbers into meaning.