Portfolio return vs Index (Money weighted?)

CFA Level III Portfolio Management
#1

Hi guys,

I hope everyone is killing it at life. I require some assistance with regard to a performance calculation that would be greatly appreciated. I have a friend who is trying to calculate their portfolio performance return and compare it to the benchmark index and the flows are as follows:

26/03/2013 +$612,231
03/03/2016 +$49,435
28/02/2017 +$47,187
03/03/2020 +$58,984

So only money put in, nothing taken out. The value at 15/07/2020 is $795,542.

The benchmark index value is as follows:

26/03/2013 42584
15/07/2020 45672

The friend wants to calculate the performance of his investment vs that of the benchmark index but I find it very confusing with how far apart the initial investment is and the additions. I understand it would be the Money Weighted return used to do the comparison but I am struggling to grasp the calculation.

Thank you for the help.

#2

Since there are dates, use the XIRR function in Excel.

2020-07-23_11-40-46

#3

Thank you for the help. And what would I do if I wanted to convert that into annual?

Also, do you think MWR is the best choice given that the timing of the cash flows play a role?

#4

The output from XIRR is annualized.

Depends on who controls the timing of the cash flows (manager or investors).