LO9 Investment Performance and Review
Portfolio evaluation, benchmark selection, time- and money-weighted returns, new-money and timing effects, review changes, external services and rebalancing.
How to prepare for R02
Match the annual edition to your exam date, learn product structures and risk relationships, then practise calculation, analysis and client-application decisions.
Core concepts
Concept 1
Performance analysis must match return period, cash flows, fees, tax, income treatment, risk and an appropriate benchmark before drawing conclusions.
Exam cue: Define gross or net, nominal or real, income or total return and the exact measurement period.
Concept 2
Time-weighted return reduces the effect of external cash-flow timing for manager comparison, while money-weighted return reflects the investor's experienced return and timing of contributions or withdrawals.
Exam cue: Select TWR for investment-manager comparison and MWR when the investor's cash-flow timing is part of the outcome.
Concept 3
Portfolio review revisits client circumstances, economic conditions, products, services and benchmark evidence, then rebalances or changes holdings only where the rationale and costs support action.
Exam cue: Before rebalancing, compare current and target weights, tolerance bands, tax, transaction cost, liquidity and changed suitability.
Risk pitfalls and guardrails
Comparing returns from different periods, risk levels, currencies or fee bases.
Guardrail: Do not mix asset and wrapper, nominal and real, price and yield, willingness and capacity, or benchmark return with investor experience.
Using an unsuitable broad index because it is familiar.
Guardrail: Do not mix asset and wrapper, nominal and real, price and yield, willingness and capacity, or benchmark return with investor experience.
Rebalancing mechanically when tax, cost, illiquidity or changed objectives require a different response.
Guardrail: Do not mix asset and wrapper, nominal and real, price and yield, willingness and capacity, or benchmark return with investor experience.
Memory anchors
Comparable Return
Align period, currency, fees, tax, income treatment and risk before comparison.
Benchmark Fit
A useful benchmark reflects the portfolio mandate, asset mix, risk and investable opportunity set.
TWR
Time-weighted return reduces the effect of external cash-flow timing for performance comparison.
MWR
Money-weighted return reflects the investor's actual timing and size of cash flows.
Review Triggers
Client, market, tax, product, provider and service changes can all justify review.
Rebalance with Evidence
Restore or revise the allocation only after checking suitability, bands, cost, tax and liquidity.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
Which elements belong in a fair portfolio-return calculation? Select all that apply.
A portfolio starts at £100,000, ends at £106,000 and pays £2,000 income with no external flows. Which statements are correct? Select all that apply.
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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