According to the AIMR-PPS, performance must be calculated
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A. B. C. D.D
Performance must be calculated after the deduction of trading expenses (e.g., broker commissions and SEC fees), if any. This is a requirement for calculation of returns.
According to the AIMR-PPS (Association for Investment Management and Research-Performance Presentation Standards), the calculation of performance can be done either before or after the deduction of trading expenses, as long as that information is disclosed. This means that the correct answer is A. before or after the deduction of trading expenses, as long as that information is disclosed.
The AIMR-PPS provides guidelines for calculating and presenting investment performance to ensure consistency and transparency in the industry. It allows investment professionals to calculate performance in a manner that suits their specific needs, while still providing investors with the necessary information to evaluate investment performance.
The reasoning behind this answer is that investment managers have different approaches to accounting for trading expenses in their performance calculations. Some managers prefer to calculate performance before deducting trading expenses, as it allows them to present the raw performance of their investment decisions. This can be useful for comparing the performance of different investment strategies or analyzing the skill of the investment manager in making investment decisions.
On the other hand, some managers prefer to calculate performance after deducting trading expenses. This approach takes into account the impact of trading costs, such as commissions, bid-ask spreads, and market impact, on the overall performance. Deducting trading expenses provides a more realistic representation of the returns that investors would have actually received.
Both approaches have their merits, and the AIMR-PPS recognizes this by allowing managers to choose the method that best suits their strategy. However, regardless of whether performance is calculated before or after the deduction of trading expenses, it is essential that this information is disclosed to investors. Full disclosure ensures transparency and allows investors to understand how trading expenses may have affected the reported performance.
In summary, according to the AIMR-PPS, performance can be calculated either before or after the deduction of trading expenses, as long as the approach is disclosed to investors. The choice of method depends on the investment manager's preference, but transparency is crucial in order to provide accurate and meaningful performance information to investors.