Measuring performance
Behaviour gap
Also called Investor return gap
The difference between what a fund returned and what its investors actually earned in it.
How it works
Funds report time-weighted returns; the money invested in them earns a money-weighted one. When money tends to arrive after a fund has done well and leave after it has done badly, the money-weighted return comes out below the fund’s.
It is measured by setting a fund’s time-weighted return beside the money-weighted return of all the money invested in it over the same period. The difference is what the timing of purchases and sales cost, or added.
Where it misleads people
A fund’s published return is not what its investors earned. A fund can show a strong time-weighted return while the money in it, arriving after the rises and leaving after the falls, earned far less.
Related terms
- Money-weighted returnThe return your actual money earned, counting when each contribution and withdrawal happened.
- Time-weighted returnA return that strips out the effect of money you added or withdrew, so it measures the investments alone.
- Market timingTrying to buy before rises and sell before falls, rather than staying invested throughout.
- Loss aversionThe tendency to feel a loss roughly twice as intensely as an equivalent gain.
Mentioned in
More in Measuring performance
- Benchmark
- Backtest
- CAGR
- Annualised
- Calmar ratio
- Yield on cost
- Contribution to return
- Unrealised profit and loss
All 29 Measuring performance terms · The full glossary, 433 terms
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