Time-Weighted Return Calculator

The Time-Weighted Rate of Return (TWR) is the gold standard metric mandated by the Global Investment Performance Standards (GIPS) for reporting mutual fund, hedge fund, and wealth manager performance. Unlike simple dollar-weighted returns or Money-Weighted Returns (MWR / Internal Rate of Return), TWR removes the distorting mathematical effects of external cash deposits and withdrawals, which are controlled by the client rather than the investment manager.

Consider an investor who deposits $100,000 into a fund that achieves a 20% gain in Year 1 (growing to $120,000). Euphoric with the gain, the investor deposits an additional $500,000 right at the market peak. In Year 2, the fund drops by 10%. Because the 10% decline occurred on a much larger $620,000 capital base, the investor loses $62,000 in cash—producing a negative overall dollar profit despite the fund gaining 20% in Year 1 and losing only 10% in Year 2.

The Money-Weighted Return would show a severe negative percentage because of the investor's ill-timed deposit. In contrast, the Time-Weighted Return breaks the investment period into sub-periods at each cash flow date, calculates each sub-period's return independently, and links them geometrically: ( text{TWR} = (1 + R_1)(1 + R_2)dots(1 + R_n) - 1 ). In this example, the TWR accurately reflects positive manager performance: ( 1.20 times 0.90 - 1 = +8.00% ).