April 30 2008

FI Fund receives $3.17370 per Great Southern TREES2 (GTPGA) Security.
This total of $4,760.55 was directly deposited into the FI Funds model bank account.

Individual tracking
I now need to determine how best to track the total return of this security. I’m currently thinking about using an adjusted close basis. If anyone has a good suggestion please let me know.

Portfolio tracking
For my personal portfolio I use IRR . I need to determine if this is best for the FI Fund or if another calculation like TWR is most appropriate. Any input is welcome.
This thread on The Motley Fool Liquid Lounge contained this sage advice by EnochRoot. Although this is not directly applicable to the FI Fund at present I found this to be excellent advice for fund managers.

“Wholly appropriate IMO to include both TWR and IRR in your client correspondence. For marketing purposes though, TWR is really the only appropriate calculation to use.

Easiest way to explain the difference to clients who may be confused by two different numbers: “Mrs. Client, IRR is YOUR performance, TWR is MY performance.” The IRR, which incorporates cashflow timing into the return calculation, most accurately shows how the account itself performed. However, since the client controls the timing of cash flow into and out of the account, not the money manager, it would be inappropriate for the manager to take credit for the benefit (or detriment) of the timing of those flows (I am assuming you don’t have the right to call capital into the fund like a VC/PE fund would.) TWR strips away cash flow and simply calculates the performance of the money manager’s actions alone, making it more appropriate measurement with which to judge how well the manager himself is performing (thus making it the only appropriate measuring tool for marketing purposes). “

I will endeavour to determine the best method before updating the FI Fund’s one month performance, which is surprisingly due tomorrow.

Cheers
Dean