Time-Weighted Return
A performance measure that neutralizes the distorting effect of investor cash flows, enabling fair comparison of portfolio managers.
What is TWR?
Time-weighted return (TWR) calculates investment performance by dividing the measurement period into sub-periods defined by each external cash flow (deposit or withdrawal), computing the holding-period return for each sub-period, and then geometrically linking those returns. Because TWR eliminates the impact of the timing and size of cash flows — which are controlled by the investor, not the manager — it is the industry-standard measure for evaluating and comparing investment manager performance. The CFA Institute and the Global Investment Performance Standards (GIPS) require TWR for compliant performance presentations. It contrasts with dollar-weighted return (IRR), which reflects the actual investor experience but varies with cash-flow timing.
Example
A fund earned +10% in Q1. A large investor then deposited $1 million just before a −5% Q2. The dollar-weighted return was dragged lower by the badly timed deposit, but TWR = (1.10 × 0.95) − 1 = 4.5%, accurately reflecting the manager's performance independent of when clients chose to invest.
Source: CFA Institute — Global Investment Performance Standards (GIPS)