Netwealth Investments Limited provides various portfolio performance reports with options for Internal Rate of Return (IRR) and Time Weighted Rate of Return (TWRR) calculations. Reports include Portfolio Performance, Asset Performance, Account Snapshot, My Statement, and Return Contribution, etc. This guide explains what each report does, what the different calculations mean and answers frequently asked questions.
Netwealth Investments Limited (NIL) ABN 85 090 569 109 AFSL 230975 and Netwealth Superannuation Services Pty Ltd (NSS) ABN 80 636 951 310, AFSL 528 032 together, Netwealth provide you with a suite of reporting options to help you understand how your/your client's portfolio has performed. This guide provides information on how returns are calculated for your reports and statements.
Netwealth provides reports containing performance data at the portfolio and asset level, with options for some reports to also include benchmark data for comparison. The performance report options include:
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Portfolio Performance report
Provides details of the performance of the total portfolio over various commonly reported periods, in graphical and tabular form. Benchmark data may also be included. -
Asset Performance – Detail report
Provides return data for individual assets and the total portfolio for the selected period. Performance calculations are based on asset values and cash flows, e.g. purchases, sales and income (for assets) and deposits and withdrawals (for the portfolio). Benchmark returns may also be included at the portfolio level. - Asset Performance - Multi Period report Provides a view of individual asset and portfolio performance across time intervals. Benchmark returns may also be included for comparison.
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Account Snapshot
Displays an overview of the portfolio for the date range specified, including portfolio movements, asset allocations and returns. Benchmark returns may also be included for comparison with portfolio returns. -
My Statement
Combines key details and comprehensive information on the account(s) in a single report, including each of the reports detailed above. Benchmark data may also be included. A useful insight into overall account balances. -
Return Contribution report
Provides details on the contribution of assets and asset classes to the total asset return (excluding cash), in graphical and tabular form.
These reports (with the exception of the Return Contribution report) offer users a choice of calculation methodology for the performance data:
- Internal Rate of Return
- Time Weighted Rate of Return
What is Internal Rate of Return (IRR)?
IRR measures your/your client's personal return on invested funds, capturing the impact of your/your client's cash flow decisions as well as the impact of investment decisions and market movements. The weight of your/your client's personal cash flows invested at any point in time will impact the final return calculation. Because the return is unique to your/your client's portfolio (or asset) and the timing and size of cash flows, it is not generally comparable to benchmark indices or to returns of other portfolios (or assets) that have different cash flow patterns.
IRR will reflect your/your client's cash gain/loss over a single period - a gain will always be reflected by a positive return and a loss by a negative return.
For example, if an asset doubles in value over 6 months from $1 to $2 whilst you have $10 invested, you then add $80 to that same investment whilst the unit price is $2, and the unit price then drops another 6 months later to $1.50, the value of your portfolio after 1 year will be $75. The performance of the asset under an IRR calculation over that entire period will be approximately -28%, i.e. a negative figure reflecting the cash loss over the period.
| Time | Unit price | Investment | Portfolio Value |
| T+0 | $1.00 | +$10 | $10 |
| T+6 mths | $2.00 | +$80 | $1001 |
| T+12 mths | $1.50 | $75 |
- Initial $10 has grown to $20, plus new $80 deposit
In the above example, IRR measures the fact that your $90 investment is now worth $75, equating to -28% return (due to the large purchase occurring at the higher price).
What is Time Weighted Rate of Return (TWRR)?
TWRR calculates the performance of your/your client's portfolio (or asset) irrespective of the amount invested, effectively measuring the performance you/your client would have obtained had personal cash flows not occurred. The weight of your/your client's personal cash flows invested at any point in time does not impact the final return calculation. For this reason, TWRR is generally comparable to benchmark indices.
Unlike IRR, TWRR will not necessarily reflect your/your client's cash gain/loss over a single period. It can, at times, legitimately produce results that may not seem intuitive, whereby a gain is reflected by a negative return and a loss by a positive return.
| Time | Unit price | Investment | Portfolio Value |
| T+0 | $1.00 | +$10 | $10 |
| T+6mths | $2.00 | +$80 | $100 |
| T+12mths | $1.50 | $75 |
In the above example, TWRR neutralises the impact of cash flows and measures the unit value of your investment increasing from $1.00 to $1.50 over the period, equating to a +50% return.
FAQs
Are returns annualised?
Returns for periods less than 12 months are not annualised. Returns for periods greater than 12 months are annualised, unless marked as ‘cumulative’ (in some charts), in which case they are not annualised.
Why do some asset returns (%) have an asterisk in reports?
Returns appear with an asterisk for an asset (or asset class) if it has not been held for the full reporting period due to purchases and/or sales within the period. The return that is reported represents the return only for the period it was actually held.
Why are some asset returns (%) not reported at all?
If an asset (or asset class) was not held continuously over the reporting period (such that it was sold in its entirety at some point during the period then was purchased again prior to the end of the period), a return (%) figure is not reported. In these instances, it is not valid to link returns for the multiple periods the asset was actually held. If return (%) data for such assets is required, please use the Asset Performance - Multi Period report and refer to the 'Since Inception' (SI%) column or create separate reports for each of the subperiods that the asset was held.
Note, however, that this is still possible and necessary to calculate and report return contributions for such assets, as they contribute to the overall return during the periods they are held. Daily calculations of contributions and the additive nature of these figures facilitate this.
How are TWRR figures calculated?
TWRR calculations for all portfolios (and assets) are calculated daily to obtain the most accurate results. The daily figures are then geometrically compounded to obtain returns for any required period.
Cash flows are assumed to occur at the end of the day for both IRR and TWRR. For TWRR, however, on days when net external cash inflows occur (e.g., on initial deposit into an account or initial purchase of an asset), cash flows are assumed to occur at the start of the day. This avoids calculation errors and some distorted returns.
How can a positive percentage TWRR occur with a negative dollar return (and vice versa)?
This can arise occasionally with TWRR and is a legitimate outcome of the calculation in certain circumstances, particularly when large cash flows coincide with significant market movements. The size and timing of your personal cash flows invested at any point in time does not impact the TWRR calculation, but can have a significant impact on your dollar returns. The TWRR is essentially measuring the true performance of the assets you are investing in.
For instance, a large asset sale that occurs at a time when the asset's price is at its lowest relative to the price at the end of the period may result in a negative dollar return, but the TWRR would reflect the market movement of the asset and could be positive as it is not impacted by the unfortunately timed sale transaction.
This is not an issue with IRR as a capital loss is always reflected by a negative return, and a capital gain reflected by a positive return.
What is the Return Contribution report?
The Return Contribution report is a form of contribution analysis that identifies the relative contribution of each asset, and asset class, to the Total Asset (excluding Cash) return.
How are the Return Contribution % figures calculated?
The daily returns of each asset are weighted to derive daily contributions, and then aggregated over the reporting period to determine each asset’s contribution for the period. The sum of the individual asset contributions for the period will match the overall Total Assets (excluding Cash) return. The calculation methodology is consistent with the TWRR methodology and uses similar cash flow timing assumptions.
Why do the total returns in the Return Contribution report differ from those in the Asset Performance, Account Snapshot and Portfolio Performance reports?
The total return (% and $) provided in the Return Contribution report is based on Total Assets excluding Cash data (i.e. excluding transactional cash accounts), and does not consider fees, costs or rebates. Such transactions are typically irrelevant to the contributions of individual assets so have not been captured in the Return Contribution report.
The total returns in the other reports, however, are based on Total Portfolio data, which includes transactional cash accounts, costs, rebates, and fees and administration costs depending on the net or gross return selection.
Note: The Total assets (excluding Cash) figures are derived by aggregating data across all assets in the portfolio, excluding amounts held in transactional cash accounts. Returns (%) are not calculated or reported for transactional cash account assets.
Why are return (%) figures not reported for transactional cash account assets?
For transactional cash accounts, we provide dollar-based returns, but do not calculate percentage-based returns. This is because the volume of transactions (cash flows) occurring in such transactional accounts can lead to misleading results.
The dollar and percentage-based returns to such assets are driven by the interest rate applied to daily balances, which can be found here: https://www.netwealth.com.au/web/personal/investment-options/cash-account-information.
Why has the end date of my report with Morningstar benchmark data changed from my ‘latest available date’ selection?
Where portfolio returns are compared to a benchmark, the benchmark and portfolio returns are calculated over the same period. Returns are calculated to the latest date for which we have data for both the benchmark and the portfolio. Because Morningstar data is generally updated on a ‘T-2’ basis, while portfolio data is typically updated on a ‘T-1’ basis, the end date of the chosen report may require adjusting to ensure consistency.
Why do some figures in the client reports I generated today differ from those in the Asset Performance Detail report?
Back-dated transactions and/or prices applied today are captured in all reports, except for the Asset Performance Detail report and any Return % and Contribution % figures that appear in other client reports, which rely on such data from the previous day. This should be considered in comparisons of data across relevant reports that were generated today. Importantly, these discrepancies will generally disappear the following day when reports for the same period are generated.