AIRR vs. %change in unit value
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AIRR vs. %change in unit value Hi, If I run a NAV report for our club for, say, the first of the year through today, it gives me an AIRR for our portfolio as a whole. This includes, it says, all investments held during that period, but not cash. Today's NAV report also includes a unit price. If I run a NAV report for the first of the year, and compute the % change in the unit price between the first and today, I get a slightly higher percentage than the AIRR for the portfolio, for the same period. Is this difference entirely because unit value includes cash, and AIRR excludes it? Or is there something else involved that I don't know about? Mike Carroll Hi Mike,
Paraphrasing Jerry Dressel on this subject...... It is easy to prove that unit value by itself is not an accurate guide to overall performance. Take a example of a club member who invests a $100 in a club on 1/1/00 at a unit value of $10. Then on 2/1/00 that same member invests another $100 at a unit value of $20. Therefore, this member bought 10 + 5 = 15 units for a total of $200. Then on 3/1/00 the unit value is $12. Since 1/1/00, when the club began, the unit value has increased from $10 to $12. During that same period this member invested $200. Unfortunately, even though the unit value has gone up 20% in the first 2 months, this member lost $20. Rip West Saint Paul, MN Rip, Ok, I'm getting it. I added an investment to my demo club with your numbers for purchases, and the AIRR comes out negative (-59%). Thanks for your help. Mike |
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