I have a series of monthly returns in percentage points in excel. What is the GIPS compliant way to annualize this return? I used the foll. formula: =FVSCHEDULE(1,Cell Range)^(MIN(1,12/COUNT(Cell Range)))-1 The series of returns are: “0.43%,0.43%,0.43%,0.43%,0.43%,0.43%,0.43%,0.46%,0.46%,0.46%,0.46%,0.46%,0.46%,0.46%,0.46%,0.46%,0.46%,0.46%,0.46%,0.47%,0.48%,0.48%,0.48%,0.48%,0.49%,0.49%,0.49%,0.51%,0.51%,0.51%,0.51%,0.51%,0.51%,0.51%,0.51%,0.51%” Using the formula above I got 5.81%. If you annualize each monthly return and then calculate the geometric mean then u get 5.65%. Which formula is the GIPS compliant one?
For GIPS compliance I don’t think you can do this. First determine when was the firm/fund first established. Then take monthly returns since inception and chain-link them till the next reporting period (so 12 full months). by chain link I mean Rannual = (1+monthly)(1+monthly)… 12 times like this Then you got an annual return for first year. Repeat the same for next reporting cycle. If you want to do since inception to today, then simply chain link all monthly returns. I don’t know what you mean by “annualize each monthly return” but you can’t take 0.43% and do (1+0.43%)^12, then repeat same for all other months, then find geometric mean. You are assuming that the 0.43% was earned every month for 12 months, which is like simulated results - can’t do with GIPS. Anyway, using your data (36 data points so 3 years worth) First year annual return = 5.44% second year annual return = 5.76% third year annual return = 6.23% return since inception (chain link all months, or chain link the above 3) =18.46% I don’t think any other calculation would be GIPS compliant.
Thanks a lot kblade. I checked with the GIPS Calculation Discussion document and it seems u are correct.