7/23/2019 Week 9 Portfolio Performance Evaluation_color.5

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Problem with TWR and DWR

Do not control for risk!! Frequently used in investment reports, media and news.

Easiest way to adjust for risk is to compareinvestments with similar risk characteristics. For example a fund investing in technology stocks is

compared to another fund investing in technology stocks. Then time-weighted returns of each fund are ordered

(among comparison universe) and receive a percentileranking.

The problem with this approach is to hard to determine agood comparable fund. For example, one fund investing intechnology stocks could be investing in internet start-ups,another could be investing in telephone companies.