Unitisation : How to Use Benchmark Indices

[JohnnyCyclops]

So by a circular route I think we come back to my original question. How valid is it to compare a HYP performance with an Index performance?

Ozyu has been instructive in explaining that although for the Index and Units where I'm using an Excel formula =XIRR, what I'm actually calculating is the compound annual growth rate between a start and an end point. Effectively it's using =XIRR but with just two datapoints. Whereas, applying =XIRR to the series of 'Money In/Out' transactions (of which there have been 33 such events scattered irregularly across six years) does deliver a rate of return when compared to current HYP value.

To answer my own question, it seems valid to compare the Unit value with an Index value (using =XIRR, or a proper CAGR calculation), both with start/end datapoints only, but not to directly compare the 'Money In/Out' =XIRR.

That said, the Money In/Out =XIRR of 7.63% seems closely aligned with the runnning =XIRR we've got on all HYP share transactions (buy, sell, dividend, special dividend, etc), currently at 7.70%.

[funduffer]

I think all you can do is compare unit values (acc or income) against the relevant FTSE indexes. What it tells you is quite another matter, because HYP is an income strategy, and a FTSE index tracker isn't.

Personally, I compare my HYP income units against the FTSE AS index, but only to convince myself that my HYP is doing OK against a different investment strategy ( and one that delivers reasonable performance as such a passive approach always does).

For an income strategy benchmark, I just use CTY investment trust, given its commendable dividend history, and its contents containing many HYP type constituents. If HYP doesn't work out for me, I would stick most of it into CTY.

FD

[tjh290633]

Ozyu has been instructive in explaining that although for the Index and Units where I'm using an Excel formula =XIRR, what I'm actually calculating is the compound annual growth rate between a start and an end point. Effectively it's using =XIRR but with just two datapoints. Whereas, applying =XIRR to the series of 'Money In/Out' transactions (of which there have been 33 such events scattered irregularly across six years) does deliver a rate of return when compared to current HYP value.

To answer my own question, it seems valid to compare the Unit value with an Index value (using =XIRR, or a proper CAGR calculation), both with start/end datapoints only, but not to directly compare the 'Money In/Out' =XIRR.

That said, the Money In/Out =XIRR of 7.63% seems closely aligned with the runnning =XIRR we've got on all HYP share transactions (buy, sell, dividend, special dividend, etc), currently at 7.70%.

The point is that your "Money In/Out" XIRR gives you an accurate rate of return on your account. If you had zero cash in or out during the period, then you would be directly comparable with the index. The factor that is directly comparable is your unit price, because that ignores the ins and outs of cash, which will involve creating or selling units. That is why unitisation is advocated.

TJH