MAAKL's Money-Weighted Rate of Return (MWRR).

Have you ever wondered why your unit trust managers sometimes report award-winning fund performance figures for investments that you own in your portfolio and yet your own actual returns fall short of those numbers? Some  explanation might help you to understand the difference.

If you had invested a lump sum at the beginning of the year and did not add or redeem your investment, your return would be the fund’s return minus the service charge you paid. That’s simple and straightforward.

John invested RM120,000 on 1 January 20XX. At the end of the year, the market value of his investment was RM144,000. Your investment return is 20% as reported by the Fund Managers. 

However, in practice, you do not tend to sink in your entire investment on the 1st January,  but rather  you invest different amount at ad hoc or regular intervals throughout the year. In such situations, computing the rate of return becomes far more complicated Thus if you have invested the same RM120,000 on a monthly basis of RM10,000 per month,  and the profit generated are the same as above of RM144,000,  you will realise the true rate of return cannot be the same as the single lump sum invested at the start of the year as the unit price tend to flactuate over a period of time.

The MWRR is a measure of the client’s portfolio returns. It is calculated by finding the rate of return that will set the present values of all cash flows and terminal values equal to the value of the initial investment. In other words, it takes into consideration all investments and redemptions in calculating the rate of return of a unit trust portfolio.

 MWRR makes it easy for you to compare your unit trust portfolio’s returns against other investment

Volatility Factor

A investor may assume that  funds with similar objective carry the same level of risk. This assumption may not be necessarily correct as investment strategies and styles vary among fund managers. To distinguish the risk of different funds, risk measurement methods known as Volatility Factor and Volatility Classification, is used, mainly for funds that have a 3 year history. 

Volatility Factor (VF)  relates to the sensitivity of the portfolio return of a unit trust scheme/ recognised fund to changes in market conditions and the general economy.  It is a measure of the rise and fall of the fund's returns over a period of time relative to its average return.  It is basically the annualised standard deviation of the fund over the past 3 years.  A fund whose returns fluctuate widely from its average will have a higher VF and vice versa. The VF is revised monthly. 
  

Eg Fund A which has a consistent yearly return of 5% have a VF of zero (0) and less risky as the funds return in any single year is does not differ from the average of 5%.  Whereas Fund B with a a higher average return of 10% has a higher risk as its annual return is not consistent, more volatile and  vary yearly as follows:  +10%, -10% and +30%

  

Volatility Classification

Volatility Classification (VC) ranks all qualified funds by their VF in an ascending order which is the evenly divided into 5 VC as follows:

a) 1st 20% of all Fund with lowest VF - Very Low
b) Next 20% -Low

c) Next 20% -Moderate

d) Next 20% -High

e) Final 20% - Very High

Funds with high or low VF & VC in the past do not necessarily indicate that they will register the same volatities in future.  The VF and VC are not meant to be the sole criteria in selecting funds for your portfolio, other factors need to be considered too. Nor are they to be used as a comprehensive measure in determining consistency of return/performance of the fund.