The simple Dietz method[1] is a means of measuring historical investment portfolio performance, compensating for external flows into/out of the portfolio during the period.
[2] The formula for the simple Dietz return is as follows: where It is based on the assumption that all external flows occur at the half-way point in time within the evaluation period (or are spread evenly across the period, and so the flows occur on average at the middle of the period).
To calculate returns gross of fees, compensate for them by treating them as an external flow, and exclude accrued fees from valuations, i.e. do not reduce the portfolio market value by the fee amount accrued.
According to his book Pension Funds: Measuring Investment Performance,[1] Using
for beginning and ending market value respectively, he then uses the following relation: to transform into hence He goes on to rearrange this into: This formula