Portfolio yield

In periods of uncertainty about economic growth, investors may favor dividend producing assets in their portfolios. Recently we added views to chart the distribution history of individual assets. Today, we show how this extends to the portfolio level with the portfolio yield metric.

The portfolio yield is displayed in the Stats view of the Backtest:

 Portfolio Yield

The details of the calculation are accessible by clicking on the icon. The calculation is in three steps:

  • The yield is calculated for each asset as the sum of all dividends in the last 12 months, divided by the current price of the asset (e.g. ‘current yield’)
  • The asset yield is multiplied by its weight in the portfolio. This represents the contribution of the asset to the portfolio yield. For example, if an asset has a yield of 5% and the asset represents 10% of the portfolio, the contribution of the asset to the portfolio yield is 0.5%.
  • The portfolio yield is the sum of the assets yield contributions.

In other words, the portfolio yield is the weighted sum of the assets yields.

The details window contains a pie chart of the asset contributions to the portfolio yield, as well as the option to export the results to Excel:

 

Portfolio yield contributions

Note that the yields are based on the distributions of the last 12 months and the current price of the assets. Going forward, the yields may vary based on changes in future distributions and changes in the asset price.

 


Dividend and yield charts

You may inspect an asset’s distributions and historical yield through the Asset Profile view. This view is opened by clicking on the icon at the end of a portfolio position line as shown in the red circle:

dividend and yield chart

The dividend and yield chart is displayed at the bottom of the window (if not, select “Distributions” from the drop-down menu).

KO dividends

The distributions (dividends and capital gains) are shown in green. In this example for Coca Cola Company (KO) the dividends were distributed quarterly with an increase every year. The current yield is shown in orange. It is the sum of the distributions for the last 12 months, divided by the current price of the security.

You may bring up the dividend and yield chart for any stock, mutual fund, ETF in the portfolio. For example, the iShares aggregate bond ETF (AGG):

AGG dividends

We can observe the yield changes over the years. The two distribution spikes in december 2011 and december 2012 are due to capital gains distributions.


Dividends in backtest

An option was added to Portfolio Lab backtest to select how dividends should be treated:

  • reinvested in the corresponding asset (the previous default setting)
  • to cash: the dividends are accrued to the cash position of the portfolio

By default, the dividends are reinvested.

 


Advisor fee simulation

Portfolio Lab has been improved to take into account advisory fees during backtest, so that you can present truthful performance figures to your client or prospect.

Simply specify the fee as an annual percentage of assets (by default, no fees are applied).

During backtest, Portfolio Lab will subtract the fee from the portfolio at the end of each quarter, based on the end of quarter balance. If the quarter is incomplete, the fee will be prorated to the number of days. You may inspect the details of the fees in the Log view as shown below:

If specified, the advisory fees will also appear in other reports created by Portfolio Lab, including the PDF report and the Excel export.


Viewing multiple backtest charts

It is sometimes useful to show several charts on one screen to a client. We have added a small icon on the top right of the Backtest charts as shown below:

Clicking on this icon will open another view on the right of the original chart. This allows you to shown a combination of charts, for example cumulative returns with periodic returns:

The added chart may be removed later by clicking on the thrash icon shown on its upper right.