Performance drift

When you invest in a portfolio, be aware that there may be differences between the Portfolio Manager’s performance and the performance realized in your account.

What causes drift?

  • The Portfolio Manager’s compliance with the trading rules
    For the protection of clients, trades that a Portfolio Manager makes that are outside the Covestor trading rules are not replicated in client accounts.
  • Your risk score and exclusions
    Your risk score and any securities you choose to exclude from being traded in your account could result in certain trades executed by the Portfolio Manager not being replicated in your account.
  • Your cash flow behavior
    Performance drift will result if you frequently invest additional cash or partially redeem your investment.
  • Inability to mirror in exact proportion
    Depending on the size of your investment relative to the Portfolio Manager’s, translating each trade the Portfolio Manager makes into whole shares in your account can lead to small rounding differences, and therefore slightly different allocations.
  • The broker’s availability of stock to lend
    When shorting, the stock must first be borrowed. The broker may not have the exact amount of stock available to fulfill all that is requested.
  • The unique features of the investment product you invest in, such as options.
    Options contracts usually cover 100 shares and do not trade in fractions. Therefore, performance drift can occur whenever Covestor replicates a Portfolio Manager’s options trading in your account and has to round down or up any quantity traded to account for the different amount invested in the two accounts. This can lead to over- or under-hedging or leverage in your account in comparison to the Portfolio Manager’s. Options are also leveraged instruments, and could be more illiquid than other investment products. Partial assignments of options contracts could also result in performance drift between your account and the Portfolio Manager’s. These unique features of options could lead to your account having significantly different performance, leverage, levels of risks and trading costs than the options portfolio you invest in.

Performance drift can be to your disadvantage or to your benefit.