Partial Year Analysis

Since plans are not always run at the very beginning of the year, we need to adjust the first year of the plan returns to account for this. In other words, if you're running a plan in December, it doesn't make sense to credit the portfolio with a full years returns in less than a month.

Adjusting Portfolio Returns

To adjust the portfolio return in the first year of a plan, we scale it based on the amount of time left in the year. There are three parts to our investment returns:

  • Random Return
  • Advisory Fee
  • Expense Ratio

Each of these things needs to be adjusted based on how far into the year we are. For the raw return we figure out the implied daily return, and scale that back based on the number of days remaining in the year. This allows us to compensate for the effects of compounding.

The impact to the advisory fee and expense ratios is computed based on the percent of the year left. So for instance, let's say we had an advisory fee of 1%. If we were running the analysis on August 7 (40% of the year left), then the fee charged would be 40bps (1% x 40%).

This will only affect the first year of the plan, as the remaining years cover the entire year of analysis.

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    Michael Dorigan

    This note fails to inform us as to the steps required to activate a partial year analysis. It only tells us what happens in the event of a partial year analysis.

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