A measure of the compound rate of growth of a portfolio. It is normally used to compare the return of investment manager because the method eliminates the distorting effects of the inflows of new money. When calculating, the effect of varying cash inflows is eliminated by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of the period.
A rate of return calculation. The time-weighted method minimizes the impact of cash flows on rate of return calculations. Time-weighted returns are an appropriate measure of an investment manager's performance, since investment managers may not have direct control over the timing or amount of cash flows directed to them.
The amount and timing of cash flows do not impact time-weighted rates of return since the returns for each sub-period are equally weighted. Since investment managers have little control over cash flow, time-weighted returns are an appropriate method of analyzing the manager's performance.
A method used for calculating investment return that seeks to minimize the distortion caused by cash flows into and out of a portfolio over a given period.
Related: Geometric mean return.
Method of performance measurement that strips the effect of cash flows on investment performance by calculating sub-period returns before and after a cash flow (i.e. a deposit or a withdrawal of cash or securities) and multiplying these sub-period returns Time-weighted performance removes the impact of cash flows and, as a result, is widely accepted as the appropriate method of comparison for investment managers and market index returns.
A measure of the compound rate of growth in a portfolio. Because this method eliminates the distorting effects created by inflows of new money, it is used to compare the returns of investment managers. When calculating, the effect of varying cash inflows is eliminated by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period.