Modified Dietz method

The modified Dietz method is a measure of the historical performance of an investment portfolio in the presence of external flows. (External flows are movements of value such as transfers of cash, securities or other instruments in or out of the portfolio, with no equal simultaneous movement of value in the opposite direction, and which are not income from the investments in the portfolio, such as interest, coupons or dividends.) To calculate the modified Dietz return, divide the gain or loss in value, net of external flows, by the average capital over the period of measurement. The result of the calculation is expressed as a percentage rate of return for the time period. The average capital weights individual cash flows by the amount of time from when those cash flows occur until the end of the period.