Q & A Database

The GIPS Standards Q&A database contains questions and answers (Q&As) on various searchable topics that provide additional interpretation on an issue. Q&As are considered to be authoritative guidance and must be followed in order to claim compliance with the GIPS standards.

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Archived

Effective: 1 December, 2013 - 31 December, 2019

Categories: Cash Flow

Source: GIPS Executive Committee

The GIPS standards state that for periods beginning on or after 1 January 2010, firms must value portfolios on the date of all large cash flows. We use the Modified Dietz method. Does this mean the Modified Dietz method will no longer be allowed to calculate monthly portfolio returns and we must value portfolios daily for periods beginning on or after 1 January 2010?

If there are no large cash flows during the period, no additional revaluation of the portfolio would be required and the use of the Modified Dietz method (or another method that daily weights cash flows) to calculate the monthly portfolio return would be acceptable. The Modified Dietz method can also continue to be used with calculating partial monthly period returns prior to and after a large cash flow. This change does not require a firm to value all portfolios on a daily basis. Instead, a firm will need to value a portfolio at the time of a large cash flow for periods beginning on or after 1 January 2010.

For example, if a firm utilizes the Modified Dietz methodology to calculate portfolio returns on a monthly basis and one of the external cash flows during the period is “large”, the firm would value that portfolio at the time of the large cash flow in accordance with its cash flow policies and procedures. The firm would then calculate the portfolio return for the partial periods before and after the large cash flow using the Modified Dietz methodology for the partial period, and geometrically link these partial period returns to calculate the portfolio’s monthly return.

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