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Making sense of your investment performance

What is a rate of return?

A gain or loss on an investment over a specified period, presented as a percentage.

Rate of return

What do the performance numbers on your statement really mean?

Time Weighted Rate of Return (TWR)

The calculation traditionally used by the investment industry that is suitable for comparing your portfolio’s return to a benchmark.

Money Weighted Rate of Return (MWR)

Canadian securities regulators now require that firms provide investors with a money-weighted rate of return, which is suitable for comparing to the rate of return used in long-term wealth projections.

Each method is appropriate for different purposes

Let’s compare the two returns

Rate of return

Time-Weighted Rate of Return

Suitable for determining how well the Portfolio Manager is doing and for comparing performance to a peer, index or benchmark.

Measures the return of a single investment amount or benchmark.

Excludes the impact of deposits and withdrawals.

Found in newspapers and your account statements from same fund companies.

Money-Weighted Rate of Return

Suitable for determining how well your account is performing and comparing to the returns used in long-term wealth projections.

Measures your personal rate of return.

Influenced by the timing and size of your deposits and withdrawals.

By early 2017, you will receive a new annual performance report that reflects your personal rate of return.

Rate of return

Your deposits and withdrawals can have a large impact on your money weighted return.

Investor return examples

The following is an example of the performance of one investment fund and three different investors. See how transactions impacted their money-weighted returns.

The Fund

Sarah

Buy Low. Sell High.

Buying more of an investment that has underperformed or selling it after it has outperformed may cause the MWR to be higher than the TWR.

Sarah bought more units at a lower price in March, resulting in better performance on her personal return (MWR) than the investment (TWR).

Jonah

Buy High. Sell Low.

Buying more of an investment that has performed well or selling when it has underperformed may cause the MWR to be lower than the TWR.

Jonah bought more units at a higher price in June, resulting in a weaker performance on his personal return (MWR) than the investment (TWR).

Ken

Buy and Hold.

Buy and hold strategies that eliminate cash flows during the measurement period make the TWR and MWR equal.

Ken held his original unit position, resulting in the same performance on his personal return (MWR) as the investment (TWR).

Contact your Assante Advisor today