Benchmark comparison possible issue


I am wondering how the benchmark comparison percentage is calculated because I have made 2 transactions on SXR8 which basically follows sp500 performance, but when I look at benchmark percentage comparison with sp500 it is completely different from ROI. I would expect that this comparison was calculated as if I had invested the same amounts, on the same dates, not in instruments that I had invested in but in an instrument with GSPC (S&P500) performance, and for my case should give me about the same percentages. I have attached some screenshots.

Hey Adam,

Benchmark is a simple return rate, meaning it’s (ending_price/ starting_price) - 1.

ROI is very simplified as well, as it’s (cashflows_out / cashflows_in) - 1 - so it doesn’t take into account time, but does take all your cashflows. It would be roughly equal to benchmark if you just bought everything on a single day and never sold. This is a good rate to use if you generally just buy and/or never reinvest what’s sold.

You can switch to IRR (a.k.a. MWR - Money Weighted Return), which would take into account your timing and amounts invested. This way, you can compare how you outsmarted or underperformed the index.

The last one is TWR (a.k.a Time Weighted Return) which ignores your cashflows altogether. This should roughly equal the benchmark if you owned any amount of the stock during the whole comparison period.

:point_up: It’s worth remembering, that at least currently, benchmark rate of return does not account for cashflows, fees, taxes or inflation.

The only exception is if you use your portfolio as a benchmark (Account or Filter) - in such case the rate is calculated the same for both.

I hope it makes sense :slight_smile:

Btw @Adam_V, many thanks for these questions - I’ll have a neat reference to finally write the article on these calculations :face_holding_back_tears:

1 Like