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.

What do the performance numbers on your statement really mean?

Time-Weighted Rate of Return (TWRR)

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 (MWRR)

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

Time-weighted rate of return

 

Suitable for determining how well the portfolio manager is doing and for comparing to a peer, index or benchmark.



Measures the return of a single investment amount or benchmark.

Excludes the impact of your deposits and withdrawals.

Found in newspapers and your Stonegate portfolio statement.

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.

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 pool and three different investors. See the impact transactions have on their money-weighted returns.

The Investment Pool

Buy Low. Sell High.

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

More units were bought at a lower price in March, resulting in better performance on a personal return (MWRR) than the investment (TWRR).

Buy High. Sell Low.

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

More units were bought at a higher price in June, resulting in a weaker performance on a personal return (MWRR) than the investment (TWRR).

Buy and Hold.

Buy and hold strategies that eliminate cash flows during the measurement period make the TWRR and MWRR equal.

Holding on to original unit position results in the same performance on a personal return (MWRR) as the investment (TWRR).

This infographic is published by Stonegate as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this infographic is accurate at the time of publication. However, Stonegate cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. The charts are for illustrative purposes only are not intended to illustrate the performance of any portfolio.