A composite is defined as a group of portfolios that are managed with the same strategy or objective. Rather than presenting the performance of each individual portfolio, the firm can simply disclose the composite return of the portfolios as a group.
The determination of which portfolios to include in the composite should be done according to pre-established criteria (i.e., on an ex-ante basis), not after the fact. This prevents a firm from including only their best-performing portfolios in the composite.
The composite return is the asset-weighted average of the performance results of all the portfolios in the composite.
The following is not required for the Level I candidate but is provided as a reference only.
|Jeanette: objectives: worldwide acceptance ensure accurate and consistent investment performance data for reporting... promote fair, global competition foster the notion on a global basis characteristics: ethical standard minimum worldwide standard inclusion of all fee-paying portfolios, showing a min of 5 yrs of GIPS compliants history concept definition: a composite is a set of portfolios that all follow the same investment style.i.e, your company manages high net worth portfolios for individual clients. 4 of your clients follow an international growth style philosophy. for reporting purpose, the performance of these four portfolios would be reported together in the international growth composite. (this is to prevent firms from presenting only the results of their best performance portfolio)|
| jainrajeshv: 1. Disclose the composite return of the portfolios as a group.|
2. The composite should be done according to re-established criteria (i.e. on an ex-ante basis)
3. The composite return is the asset-weighted average
|viannie: Composites that includes all portfolio that is being managed by the firm + those that have been historically managed. Firm is to be fair in disclosing and representing the all the portfolio in the composite which had to be on an ex ante basis. These are to avoid 1) survivorship bias 2) representative accounts and 3) varying time period => precisely the reason to comply by GIPS.|