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Under GIPS firms must disclose the presence, use and extent of leverage, derivatives, and short positions if material including…

…a description of the frequency of use and characteristics of the instruments sufficient to identify risks.

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Under GIPS terminated portfolios must be included in the historical performance of the composite up to…

…the last full measurement period that each portfolio was under management.

Under GIPS composites must include new portfolios…

…on a timely and consistent basis after each portfolio comes under management.

Under GIPS can a firm include a single portfolio in more than one of the firm’s composites?

YES. The Standard requires all actual discretionary, fee-paying portfolios be included at least one composite.

If a portfolio meets the criteria it may be included in more than one composite.

Modified Dietz formula with Cash Flow Weighting Factors

rcomp = Ending Portfolio Value – Beginning Portfolio Value – Net Cash Flow / Beginning Portfolio Value + Sum of Net Cash Flows Multiplied by Cash Flow Weighting Factors

The GIPS standard does require firms adhere to…

…the principals of financial accounting.

GIPS definition of internal dispersion

A measure of the spread of the annual returns of individual portfolios with a composite.

Acceptable measures include:

Interquartile Range

The length of the interval containing the middle 50 percent of the data.

Thus it is the spread or arithmetic difference between the returns at the 25th and the 75th percentiles.

Approximate position of a percentile y

Ly = (n + 1)(y/100)

n = sample size

y = usually a quartile

You still need to do linear interpolation.

Asset-Weighted Standard Deviation (formula)

assetWeightedSTD

rproxy is asset-weighted mean return of portfolios

wi is weight of portfolio i

rproxy