Last Updated on 1st November 2023 Most investors rely on their advisers and fund managers to deliver reports showing how their assets are performing and projecting future returns. The issue can be that investment portfolio reports aren’t always easy to understand, and in some cases, don’t necessarily highlight potential concerns that you need to be aware of.
Let’s look at some of the terms, figures and metrics you should expect to see in your investment reporting – and provide tips to help you use that data to make sound decisions.
If in any doubt about how to interpret your investment reports, please get in touch with our expert team at your convenience.
Investment Performance Benchmarks That Matter
Primarily, most portfolio reports focus on past performance and, undoubtedly, you want to know how your fund has changed in the past year. But it’s worth noting that past performance isn’t any guarantee that your returns will remain positive in the future. Best practise reporting considers a range of external market conditions and factors that might influence your opportunities.
Another typical obstacle, particularly for expats, is that your reports may not be in your first language, making it exceptionally difficult to feel in full control of how you manage your wealth. As a quality benchmark, investors should look for reports that are:
- Easy to understand.
- Inclusive of all the hard metrics.
- Accompanied by clear explanations and tailored recommendations.
Risk remains a big part of your portfolio management, so precision forecasting and advice about diversifying across asset classes are as important as the figures alone.
Comparing Investment Portfolio Assessment Techniques
There are multiple ways to measure performance, which might vary depending on your fund objectives.
For example, a short-term investment focused on a quick turnaround profit relies on immediate market prices, so the vital information will differ from a long-term retirement investment. Patterns of earnings growth, market volatility and interest rates all build into comprehensive reporting, depending on the types of funds or investment assets you own.
Advisers can provide both benchmark reports, comparing fund performance to stock markets, or absolute performance reports solely focused on your actual profit and weighted against your expected returns.
Let’s work through some of the calculations you will regularly see in investment portfolio reports and what they mean.
Investment Yield
Yield shows you how much income you have earned from your investment, usually over the last year, as a percentage of the original investment. The exact calculation basis depends on what type of asset you hold:
- The yield on investment stocks uses the dividend paid in the year over the market price. If there isn’t a dividend, the stocks haven’t returned any gain.
High dividends don’t always mean that the enterprise is successful and can be issued to retain shareholders, so this data is best supported with contextual information. Likewise, high-value dividends can provide a short-term portfolio boost. Still, they might also indicate a lack of reinvestment in the business, which may or may not align with your expectations.
- Bond yields, where the bond has been bought at the point of issue, provide a return through the interest rate. This calculation looks at the interest earned in the year against the bonds’ value, so £50 interest earned on a bond worth £1,000 equates to a 5% yield.
Bonds bought in a secondary market are different since the price paid won’t be the same as the initial issue rate. The yield can fluctuate depending on interest base rates and market demand, so while you might have a fixed interest rate, that doesn’t always mean static levels of return year on year.
Rates of Return
Another familiar figure reported in your investment portfolio performance is the rate of return.
To calculate a total return, you need to know how much your total fund has gone up or down in value. This figure is then compared against all of the revenue earned from the investment. That means:
- Taking the total change in fund value, plus all income earned.
- Dividing that number over the entire investment amount.
- Using the resulting figure as a percentage to show your return.
Return rates, like yield, don’t provide the whole picture since investments held over time will necessarily change and produce different rates of return from year to year. In that case, a long-term portfolio report should compare annualised returns.
Capital Earnings
Even if you don’t plan to trade or sell any assets in the near future, you still need to know how much is tied up in your investment portfolio in unrealised gains and losses. Those figures relate to gains or losses against capital assets – in this case, investment assets – which have grown or dropped in value but haven’t been sold or traded to realise a Capital Gains Tax liability (or offset).
While changes to the market value of an investment might not substantially impact your immediate wealth, your adviser should disclose these figures to ensure you make educated choices about the overall value of your portfolio.
Professional Investment Portfolio Reporting Advice
As we’ve seen, there isn’t one universal way to report on how your investment fund is performing, and advisers can use different techniques to evaluate returns, often tailored to the type of assets held and your overall objectives.
Whatever format your investment portfolio reports take, they need to be comprehensive enough to allow you to see short-term gains, identified risks, projected future performance, and the overall picture about whether your fund is hitting your primary objectives. If you’re concerned that you aren’t receiving regular feedback about how your portfolio is performing or feel that the information isn’t comprehensive enough, we’d recommend seeking independent advice.
Chase Buchanan is a global leader in expat wealth management, assisting clients worldwide in making informed judgments about the best ways to invest their assets. Please get in touch with our nearest office for any help with your investment reports or advice about how to interpret the information you have been supplied with.