Can I just confirm my understanding: there are thes are types of trades that impact calculation of returns (e.g. using them impact annualised return numbers): “Buy”, “Sell”, “Adjust cost basis” (equivalent of sell for IRR calculation), “Opening balance” (equivalent of buy for IRR calculation), Return of Capital (equivalent of dividend, kind of) and Bonus (not reflected on a date of bonus but reflected in current holding value). Other types of trades (Split, Consolidation) don’t impact returns directly. Is it correct?
Question 2: regarding benchmark returns
On main portoflio view I can choose one benchmark to compare my portoflio performance to. How is annualised return of this benchmark calculated? To use a simple example: in my portfolio I invested $10 in one holding on 1 January 2022 and another $10 in another holding on 1 January 2024. Assuming no dividends, my annualised returns consist of three data points: two buys and today’s value of those two holdings.
I have a slight suspicion that benchmark annualised return is only using two data points - it assumes $20 invested in benchmark security on 1 January 2022 and today’s value, i.e. it reflects benchmark performance from first purchase to today disregarding any interim purchases (or sales if there were any). If that is the case, then benchmark is very misleading as it is based on completely different cash flow profile. Can you please confirm?
Question 1
You are correct that certain transaction types directly affect performance calculations in Sharesight:
Opening Balance - Opening balances are not directly considered in the performance calculation. Instead, the ‘market value’ on the opening balance date is used.
Buy, Sell, Return of Capital, Adjust Cost Base - Treated as cash inflows or outflows and factored into the performance calculation.
Dividends - Counted towards the dividend return.
Bonus Issues, Splits, Consolidations - These do not create cash flows but may increase or decrease the current value of your holdings, and are therefore reflected in returns.
Question 2
The benchmark assumes you’d invested equal amounts of money in both your portfolio and the benchmark for the duration of the reporting period. It does not mirror your specific investment cash flow profile, but rather provides a simple market reference point.
If you’d like a more precise comparison, you can create a separate portfolio with the benchmark holding and simulate contributions on the same dates as your actual investments.
Is there any chance that proper benchmark (ie mirroring buys and sells timing of the actual portfolio) will be implemented at some point? Mathematically it is very easy (just assume for any buy/sell or equivalent in the portfolio, instead one buys/sells benchmark security at then-market price for the same total proceeds).
I appreciate the suggestion of creating shadow portfolio but with hundreds of buys and sells over 5+ years (and no easy way to even sort them by time) it is an impossible task.
@Inveon I understand your point. I’ll add this to our feature suggestions board for further review by our product team. I’ll be sure to keep you updated if there are any developments.