Time-weighted return (TWR)
Principles of Finance glossary · Principles Of Finance
Definition
A return measure unaffected by the timing of cash flows; the standard for evaluating portfolio managers.
Time-weighted return (TWR) in plain English
Suppose you want to judge how skilled an investment manager is — but it's not fair to credit or blame them for when clients happen to deposit or withdraw money, since they don't control that. Time-weighted return strips out those cash-flow timing effects and measures only how well the investments themselves performed, period by period. Think of grading a chef purely on the taste of each dish, ignoring how many customers wandered in at busy or slow times. That's why it's the industry standard for comparing money managers head-to-head.
Also called: TWR
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