Portfolio Reporting and Review

Portfolio Reporting

Typically, a portfolio report will summarize the following:

• Portfolio asset allocation.
• Performance summary for the current (often year-to-date) period.
• Detailed performance (asset class and/or individual security performance).
• Performance reports covering the period since inception of the client's investment strategy.
• Contribution and withdrawal accounting for the current period.
• Purchase and sale ledger for the current period.
• Currency exposure listing detailing the effects of exchange rate fluctuations.

A sample portfolio asset allocation report, performance summary report, and asset class performance report are shown below. These are non-detailed reports, meant to be simplified representations.

Sample Portfolio Asset Allocation Report

Client X

Asset Allocation Report

December 31, 20XX

$$ \begin{array}{l|r|r|r}
\textbf{Asset class} & \textbf{Market} & \textbf{Current} & \textbf{Target} \\
& \textbf{value} & \textbf{Allocation} & \textbf{allocation} \\ \hline
\text{Public Fixed income} & \$320,000 & 11.5\% & 20\% \\ \hline
\text{Public Equity} & 560,000 & 20.1\% & 20\% \\ \hline
\text{Real estate (private)} & 1,011,000 & 36.2\% & 35\% \\ \hline
\text{Hedge Funds} & 900,000 & 32.2\% & 25\% \\ \hline
\textbf{Total} & \bf{ $ 2,791,000} & \bf{100\%} & \bf{100\%}
\end{array} $$

Sample Performance Summary Report

Client X

Performance Summary Report

December 31, 20XX

$$ \begin{array}{l|r}
& \textbf{Value} \\ \hline
\textbf{Beginning} & \bf{2,563,000 } \\ \hline
\text{Contributions} & – \\ \hline
\text{Withdrawals} & (55,000) \\ \hline
\text{Interest and Dividends} & 68,000 \\ \hline
\text{Capital Appreciation} & 215,000 \\ \hline
\textbf{Ending} & \bf{2,791,000 }
\end{array} $$

Sample Asset Class Performance Report

Client X

Asset Class Performance Report

December 31, 20XX

$$ \begin{array}{l|r|r}
\textbf{Asset class} & \textbf{Allocation} & \textbf{Return for Period} \\ \hline
\text{Public Fixed income} & 11.5\% & 2.20\% \\ \hline
\text{Public Equity} & 20.1\% & 1.25\% \\ \hline
\text{Real estate (private)} & 36.2\% & -0.25\% \\ \hline
\text{Hedge Funds} & 32.2\% & 5.00\% \\ \hline
\textbf{Total} & \bf{100\%} & \bf{8\%}
\end{array} $$

Additional Correspondence

In addition to reporting to similar to the examples given above, wealth managers often typically send letters that detail the current economic and market conditions.

Managers often face the issue of clients looking at short-term performance and misinterpreting that as being representative of the success of the entire investment program. Managers typically need to include in these letters, reminders to clients to take a long-term view.

When goals-based investing is used, portfolio reporting may focus on the client's progress toward a goal rather than on the performance of asset classes or individual securities.

Benchmark reports are another piece of portfolio reporting. Typically, wealth managers provide benchmark reports that state a client's performance by asset class relative to a dedicated benchmark for that asset class and the client's overall portfolio performance relative to the blended benchmark. An advantage of benchmark reporting is the additional comparability that it provides to clients.

Managers need an effective rebalancing program to make sure that the portfolio does not drift too far away from the target weights. Also, periodic review is needed to ensure the target asset allocation is still optimal.

Question

Detailed information about dividends earned during a period would most likely be contained in which report:

1. Asset allocation.
2. Performance summary.
3. Asset class performance.

Solution

The correct answer is B.

Performance summary is the section which details inflows and outflows for the portfolio over a given period of time.

A and C are incorrect. They are both related to asset class, showing their weightings within a portfolio, and their relative performance, respectively. Answer choice C would potentially contain some clues about dividends earned, but it would be lumped together with capital gains information as well, making it less detailed, and non-specific to dividends.

Reading 7: Overview of Private Wealth Management

Los 7 (m) Describe effective practices in portfolio reporting and review