Problem with implementation of Investment Return Calcualtion


I read the dialogue on how investment return is calcualted and displayed in the app:

Investment return = Current value − Net сontributions (Incoming — Outgoings funds)

However, this seems to take into account moves out of cash, but not transfers in, which results in a double negtive, giving some crazy calculations on investment returns.

For example, if I had £10,000 currently inversted in my portfolio, I transfer in £50,000 into cash from another ISA provider, but then move £40,000 to another portfolio. The calcualtion becomes:

£10,000 - -£40,000 = +£50,000 investment return

I would love it if it were true though!

I think you may need to update how you are handling transfers, and if cash should be involved in the investment return calcualtion at all.

While not entirely the same problem, I’ve been very confused by the investment return calculation displayed against different portfolios in my ISA.

Example 1 - Portfolio with positive gain in value shows negative % return:
Net contribution = £800
Current value = £801.77
Return displayed as "+£1.77 (-1.14%)

Example 2 - Portfolio with worse performance than example 1, stating better % performance:
Net contribution = £800
Current value = £797.82
Return displayed as “-£2.18 (-1.02%)”

Of note, Example 2 is an “Managed by InvestEngine” portfolio. The conspiracy theorist in me wonders if the % return figures are fudged to make their managed portfolios look like they’re performing better than self-managed. :upside_down_face:

Wow that seems odd, I started ignore the figures, as even if it said I had gained 25% the figures did not add up.

Hopefully their Capital Gains Report are accurate

@CycloneRepair – Thanks for flagging, could you DM me (or send email detail of the portfolio your seeing with this issue on and we’ll investigate.

On the face of it your absolutely right that transfers in sound be include as part of the calculation – However, I do know this can get a bit more complicated when we have in-specie transfers for example.

Hi @peter

This I can explain; We’re using Time-Weighted Return (TWR) to calculate investment performance.

TWR is the industry stand for Managed portfolio because its show the portfolio managers performance over time (& isn’t affected by clients adding and withdrawing funds). The performance % is calculated each day and summed then added up… So the days you have £100 in your portfolio are treated the same as the day you have £800 in your portfolio – Hence why you have have positive £ Cash returns and negative % returns (or the other way around)

You could argue that a simple arithmetic % return based on your current portfolio might be easier to understand i.e. £ Investment return / Current balance * 100 … However, if you started the year with £100k in your portfolio & it went up 10%, then you withdrew £99k - This would show 1000% return.

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OK. I understand the methodology here. I guess the downside is that in some circumstances (e.g. mine) the TWR ends up being a very poor indicator of my investing performance.

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I don’t think that’s correct

The calculation is IR = 10k - (50k - 40k) = 0

That’s that the calculation should be, but it’s not, because it’s not netting out the contributon from an inward ISA transfer.

IE are looking into it.

Gotcha - it’s showing £50k not 0k in your case? Apologies for misunderstanding your post.

Yeah, it’s showing 50k IR, but with a 1% gain :man_shrugging:

Looks like there is a partial fix!

The investment return £value now seems correct (thanks IE team) but the % is now off.

+£92 return, but -64% :thinking:

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Hi! Your % return is negative because your portfolio performance has dipped since you first started investing. However, your pot is still earning a return although the performance has decreased. It’s also worth noting, most of your payments were made when your pot’s performance was at its worst. Since then, your pot has increased in value.

Na, this doesn’t seem right, surely.

It’s been 100% invested in the CSH2 Money Market Funf since the start, so it can’t possibly be showing a £100 increase, but a -64% return, can it?

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Here’s the chart

I am no longer with IE, so hard for me to confirm, but are the black dots when a transactions happened, i.e. buy/sell

They use Time Weighted Return to calculate the figutes, so you could use a site like Time-Weighted Return Calculator - Rate of Return Expert and see if it comes up with the same.

@CycloneRepair - Let me follow up with our development team. I know there was work on ISA Transfers inclusion in the Investment return… they may still be working on part of this.

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Seems to be fixed now, thanks!