Axxcess will generally report performance based on a Time Weighted return basis. With certain securities, where indicated, IRR will be used.
Axxcess will publish returns to investors on a net of fee basis, unless otherwise indicated.
When evaluating an investment portfolio, you may simply want to know whether the portfolio had a gain or a loss during a certain period. Defining that gain or loss brought about the creation of performance measures. Performance measures are designed to produce numbers that represent percentage returns. They are designed to give relevant information on the total portfolio’s performance. The information should give a common means of measure against other investments and other portfolio managers. Although an evaluation requirement may be simple in nature, measuring performance and
the resulting return figures can become very complex. There are several ways to measure performance, and under given circumstances different performance measures will even produce different returns from the same data.
TWR- Time Weighted Return is the required measure by the Global Investment Performance Standards
(GIPS). It is used throughout the money management industry. The reasoning behind this is twofold. Firstly, a money manager may not directly control the timing or the amount of client contributions and withdraws from their portfolio. TWR gives a rate of return that eliminates the effects of cash flows.
Secondly, TWR is used by the money management industry because it measures how the money was managed. It attempts to show the investor how well their money was managed, whether the portfolio was worth $1,000 or $1,000,000. The TWR number can then be used in direct comparison with other managers’ TWRs for the same period.
DWR/IRR- A multi-period Dollar-Weighted Return (DWR) is also referred to as the Internal Rate of Return (IRR), because it will generate a discount rate where the present value of the cost of an investment equals the present value of the return on the investment. The DWR calculation gets its name from the way its return number will be more influenced by periods when the portfolio’s dollar-value is larger. The above example is “dollar-weighted” because the performance in the second year, when two shares are owned, has a greater influence on the overall return than the first-year when only one
share was held. Because it is so influenced by cash flows, a DWR can be positive only because money
was added; or it could be negative due only to withdrawals from the account.
Since the manager cannot control cash flows and the total dollars invested in the portfolio it is seen as inappropriate to use a measure like DWR that skews returns based on dollar amount size. TWR will generally differ from DWR, and the difference can be positive or negative depending on the period returns and portfolio activity. This usually happens at an early stage of a portfolio’s management, when assets may flow into an account at various times, or any time there are numerous cash flows in and out of an account.
So in final summation, the two key elements to take away from this in regards to TWR are: that cash flows, which affect the dollar amount of an account, do not affect the TWR; and that, the TWR measures how the money was managed, not the overall dollar amount change.
The information contained herein is intended to assist you in evaluating different investment portfolio performance measures. The information in this article is for educational purposes only. The information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion, and amendment without notice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner, or investment manager.
Axxcess does not custody your assets. Currently, we manage money for clients on Schwab, Fidelity, NFS, Ameritrade, and Millennium Trust Platforms. We will help you make informed choices about your custodian. Your custodian will send you monthly statements, and tax reporting annually.
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Clients engage Axxcess Wealth Management directly or through their Advisory firm or Broker Dealer that has signed an agreement with Axxcess to allow us to provide certain services to you. You will receive our FORM ADV and sign an engagement agreement. Your Advisor will document your unique situation, and often develop a written plan or investment policy statement.
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Axxcess Wealth Management, LLC is a registered investment advisor with the SEC and is located in Carlsbad, California. Securities are offered through Arete Wealth Management, LLC, member FINRA, SIPC, NFA. Axxcess Wealth Management, LLC may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. This website is limited to the dissemination of general information pertaining to its diversified services. Accordingly, the publication of this website should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect, transactions in securities or the rendering of personalized investment or tax advice for compensation, over the Internet. Remember that past performance is no indication of future results. Investments are generally not FDIC insured, and may lose value.
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Pursuant to the March 13, 2020 Exemptive Order issued by the Securities and Exchange Commission (the “SEC”) allowing an extension of the Annual ADV filing deadline, Axxcess Wealth Management, LLC has elected to request such an extension and intends to file by April 10, 2020.