Why is my fund's return different from my broker's?
Advanced · Video 11 of 16 · 0:55 ·
Usually because money came in at different times. Example: a $1 million fund gains 1% by August 13, falls 2% by the 20th, then a new investor adds $250,000 on the 21st and the fund climbs 3% to month-end. The investor who was in all month made 1.9% (+1%, −2%, +3%). The new investor skipped the drop and made 3%. The broker divides the account's gain by the average money in it, and more money was in for the best stretch, so it shows 2.5%. All three are right. Each investor's statement shows their own return, from the day their money came in, and fees come out after that.
Everything here is for educational purposes only and is not legal, tax or investment advice, or an offer to buy or sell any security. Laws and thresholds change and depend on your facts, so talk to a qualified attorney before acting.
Key facts
- Example numbers, rounded: +1%, −2%, then +3% after a $250,000 deposit on August 21.
- In all month: 1.01 × 0.98 × 1.03 = +1.9% (time-weighted).
- In from August 21: +3%, the last stretch only.
- Broker: $26,994 gain ÷ about $1.09 million average capital = +2.5% (money-weighted).
- Each investor's statement shows their own return from the day they came in, before and after fees.
Transcript
Founder: My broker says the fund made 2.5% in August. My investor's statement says 1.9%. Which one is wrong?
Operator: Neither. It's about when the money came in.
Operator: Say the fund starts August with a million dollars. It's up 1% by the 13th, then drops 2% by the 20th.
Operator: On the 21st, right after the dip, a new investor puts in $250,000.
Operator: Then the fund climbs 3% to the end of the month.
Founder: So who made what?
Operator: Your investor was in all month. Up 1, down 2, up 3. That's 1.9%.
Operator: The new investor skipped the drop and caught the climb. 3%.
Operator: The broker divides the account's gain by the average money in it. Extra money was there for the best stretch, so it shows 2.5%.
Founder: So the new investor bought the dip.
Operator: Exactly. Same fund, same month, three right answers. Each statement shows that investor's own return, from the day they came in.
Founder: So my broker says 2.5%...