I’m conducting a GIPS(R) (Global Investment Performance Standards) verification and encountered something somewhat unusual. The client uses a well known software package to calculate their returns and use a daily method. Here are the approximate details for one day that is behind this post:

• Beginning market value = $327,000
• Cash flow = -$337,000
• Ending market value = $940.

Obviously, the portfolio grew in value during the day which allowed them to distribute more money than they started the day with. Okay, so what return does the system yield? Actually it doesn’t provide ANY return and simply indicates in a footnote that a return isn’t possible. BUT, why not? We can employ a simple Modified Dietz formula:

which will yield a return of 3.35%. Is it really that hard? I don’t think so. Perhaps you would think so at first glance, but it really isn’t.