Lesson 10 of 10 · All lessons in this module
  1. What an interest rate is made of
  2. Holding period return
  3. Arithmetic and geometric mean returns
  4. Harmonic, trimmed and winsorized means
  5. Money-weighted return
  6. Time-weighted vs money-weighted returnVideo lesson
  7. Integrated cases: balance tables, money-weighted and time-weighted returns
  8. Annualised and continuously compounded returnsVideo lesson
  9. Gross, net, after-tax, real and leveraged returnsVideo lesson
  10. Integrated cases: from total return to what the investor keeps

Lesson 10 of 10 · 15 min

Integrated cases: from total return to what the investor keeps

A fund's headline return passes through a fixed sequence of adjustments, and the case is won by taking them in the right order and applying each to the right base.

In short

  • First find which return the stem hands you: total (before all costs), gross (after transaction costs) or net (after management and administrative costs too).
  • Total return − net return = transaction costs + management fee + administrative expenses. Each cost is subtracted once, never twice.
  • Leverage is applied to the net return of the fund, using debt ÷ equity. Interest on the loan is the investor's own cost, not the fund's.
  • Tax comes before inflation: take the after-tax nominal return, then divide by (1+inflation)(1+\text{inflation}).
  • Going backwards (net to gross) is addition: add back the expenses, and turn any fixed currency amount into a percentage of assets first.

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