Unitising a Portfolio
In Development
The topic of unitising a portfolio often popped up on TMF boards. This is an attempt to pull together some notes on the topic for further discussion.
Note: For a proposal specific to the HYP Topup spreadsheet, click here.
TMF Staffordian provides a good summary of the process in http://boards.fool.co.uk/unitisationagain12525947.aspx which is reproduced here:
Quote:
I'll start off with my understanding of the basis for determining accumulation unit numbers and values
If dividends are kept within the portfolio, and either immediately or at a later point reinvested in shares, there is no change in the number of units. All that happens is that the value of the portfolio increases, therefore the price of each unit increases a little.
Income Unit calculations
The basic principle is the same as that used to calculate accumulation unit numbers and values. But in addition to this, a calculation is needed whenever the portfolio receives income (usually dividends) but only if they are retained within the portfolio. If income is withdrawn, (e.g. to live on!) then neither the number or price of units change.
However if the income is retained within the portfolio, then this income "buys" additional units, (in contrast to accumulation units, where it simply increases the price of the units already owned).
So the calculation used when income is received is as follows:
After: Value of portfolio = £12,331; Number of units = 1,121 so price per unit = 12,331/1,121 = £11.00 per unit
So to summarise:
With accumulation units
With income units
Some links to TMF threads about unitisation:
Another useful link:
Note: For a proposal specific to the HYP Topup spreadsheet, click here.
TMF Staffordian provides a good summary of the process in http://boards.fool.co.uk/unitisationagain12525947.aspx which is reproduced here:
Quote:
I'll start off with my understanding of the basis for determining accumulation unit numbers and values
 At the point you wish to start the process, value the portfolio. Lets say it is £10,000
 Set an initial unit price, e.g. £10.00
 Divide value by unit price to produce the initial number of units owned  in this case 1,000 (10,000/10.00)
 If new money is added, say £1,100, the portfolio is revalued immediately prior to the addition. Lets say it is now worth £11,000.
 This new valuation is divided by the existing number if units (1,000) to produce a new price for the units; in this case £11.00 (£11,000/1,000)
 This new price determines how many units the additional money will purchase. In this case it is £1,100/£11.00 = 100 units.
 We now have 1,100 units each priced at £11.00 so the new portfolio value is £11.00 x 1,100 = £12,100. This makes sense, because the value prior to adding the money was £11,000. We have added £1,100 so the value has to be the sum of these figures.
 At any point, an updated unit price can be obtained by simply dividing the total portfolio value (the total value of all shares and any uninvested cash held in the portfolio) by the current number of units held.
If dividends are kept within the portfolio, and either immediately or at a later point reinvested in shares, there is no change in the number of units. All that happens is that the value of the portfolio increases, therefore the price of each unit increases a little.
Income Unit calculations
The basic principle is the same as that used to calculate accumulation unit numbers and values. But in addition to this, a calculation is needed whenever the portfolio receives income (usually dividends) but only if they are retained within the portfolio. If income is withdrawn, (e.g. to live on!) then neither the number or price of units change.
However if the income is retained within the portfolio, then this income "buys" additional units, (in contrast to accumulation units, where it simply increases the price of the units already owned).
So the calculation used when income is received is as follows:
 Calculate the value of the portfolio immediately prior to the income being received. (say £12,100 to follow on from the first example)
 Divide this by the current number of units owned (say 1,100). This gives a price per unit of £11.00
 Take the value of the income (dividend) received (say £231) and divide this by the unit price, to determine how many units this income will purchase. In this case, £231.00/£11.00 = 21 units. Therefore the new total number of units owned is 1,100 + 21 = 1,121
 You will see that the price per unit is the same before and after the "income event":
After: Value of portfolio = £12,331; Number of units = 1,121 so price per unit = 12,331/1,121 = £11.00 per unit
So to summarise:
With accumulation units
 adding money to the portfolio buys extra units but does not affect the price per unit
 dividend income received and retained in the portfolio increases the price of each unit but has no effect on the number of units
 withdrawing money (either capital or dividends received) reduces the number of units owned, but does not affect the price of each unit
With income units
 adding money to the portfolio buys extra units but does not affect the price per unit
 dividend income received and retained in the portfolio increases the number of units owned, but does not affect the price of each unit
 withdrawing dividends received from the portfolio affects neither the number of units held nor the price per unit.
 withdrawing capital reduces the number of units held but does not affect the price per unit.
Some links to TMF threads about unitisation:
Another useful link:
Some suggested structures for spreadsheets have been provided by Pinchthepennies and seagles1954
Suggestion from Pinchthepennies:



Suggestion from seagles1954:


