Calculating personal MFS portfolio performance
The Modified Dietz formula
Fund returns appearing in marketing materials and the newspaper are standardized to conform to regulatory rules regarding the presentation of mutual fund returns. These standardized returns depict the investment performance of a fund itself and allow for easy comparisons amongst different fund alternatives.
An investor’s “personal performance” depends on both the fund’s performance and when and how much the shareholder added to or withdrew from the fund. Modified Dietz, the formula used by MFS to calculate personal performance, is a widely accepted method of calculating such a return. It takes into account both the performance of the fund, and the amount and timing of investors’ contributions and withdrawals from that fund.
For a mutual fund, contributions consist of share purchases as well as exchanges or transfers of shares into your account. Withdrawals consist of share redemptions, exchanges or transfers of shares out of your account, and any cash distributions received. Sales charges paid by you will also affect your personal performance.
The calculation of a Modified Dietz return is:
Day Weighted Flows are the sum of all contributions minus all withdrawals in which each transaction is weighted by the amount of time remaining in the measurement period when the transaction occurs. Contributions in the formula above are treated as positive numbers and withdrawals as negative.
Let us say we were calculating your personal performance as of the end of the year. We will assume you made a contribution to a fund on April 30. This contribution would receive a weighting of roughly two-thirds because that much of the year still remained as of April 30. Thus a $100 contribution would add $67 to the Day Weighted Flows in the above equation. A $100 redemption would equal a day weighted -$67 withdrawal for the calculation.
As a simple example, we will use an account that begins the year with $10,000 and ends with $10,250. We will also assume there was a $100 contribution made on April 30. The personal performance calculated would be:
The accuracy of this measure may be adversely affected by significant contributions or withdrawals — as a rule of thumb, those greater than roughly 10% of the Beginning Value. For instance, if you start the period with $10,000, then contributions or withdrawals greater than $1,000 will have an impact on the accuracy of this measure. This will be particularly true if these transactions occur during times of high market volatility.
Other approaches to calculating your personal performance exist and could yield different results.
Past performance is no guarantee of future results.
MFS Investment Management,® 111 Huntington Avenue, Boston, MA 02199-7618