Net return
Return after management and administrative fees have come off the gross figure. Closer to what the investor actually received, though still before tax and inflation.
Where you will meet it
Net return appears in 4 learning outcomes on the CFA syllabus. A few of them:
- Contrast gross with net, pre-tax with after-tax, and real with nominal returns
“Gross return is before management fees and costs; net return is after them.”
- Explain how funds of funds are structured and how their fees stack up
“The layering is worse than it looks in a mixed year: incentive fees are owed to each winning underlying manager regardless of what the losers did, so an investor can pay substantial performance fees on a flat or negative net return.”
- Show how sensitivity analysis is applied
“Net return after costs, for example, falls by turnover times cost per unit traded, so doubling the cost assumption for a high-turnover strategy can erase its edge.”
- Identify the sources of income and the costs that arise when holding and running an equity portfolio, and explain how each affects performance
“Net return equals gross return plus income minus all of these costs, so high turnover or a heavy fee structure can erase any stock-picking skill.”
Practise it
Practise net return until it is automatic: questions that explain every wrong option.
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