MiCA licensed CASP by the FSC of Bulgaria · Licence No. 001-DUKA/07.05.2026
MiCA CASP licencse · No. 001-FSC Bulgaria
There are different ways to measure investment performance. The calculation method is essential to meaningful comparisons between portfolios, ETFs and other investments. Belayer reports both time-weighted return (TWR) and money-weighted return (MWR) to its clients.
Below, we explain how the two methods differ, their advantages and limitations, and when each measure is useful.
Methodology
Results and Methodology
Comparable returns are essential to informed investment decisions. Only when the returns of different investments and portfolios are calculated on a consistent basis can they be meaningfully compared.
01 · TWR
Time-weighted return
Time Weighted Return, TWR
TWR measures the compounded growth of a unit of capital invested in a portfolio. Returns earned in successive subperiods are geometrically linked to produce the return for the full period.
Formula and calculation
TIME-WEIGHTED RETURN FORMULA
TWR = [(1 + R1) × (1 + R2) × … × (1 + Rn)] − 1
Rᵢ = [EVᵢ − (BVᵢ + CFᵢ)] / (BVᵢ + CFᵢ)
Rᵢ
return for subperiod i
BVᵢ / EVᵢ
beginning / ending portfolio value
CFᵢ
deposit or withdrawal at the beginning of the subperiod
TWR is widely used in investment management because it isolates portfolio performance from the effect of interim client deposits and withdrawals. It helps assess the performance of an investment strategy independently of the timing and size of those external cash flows. Periodic and subperiod returns are geometrically linked under the Global Investment Performance Standards (GIPS), developed by CFA Institute.
Benefits of TWR
Separates strategy performance from client cash flows
TWR removes the effect of external cash flows that the manager does not control. A withdrawal made just before a market rise, or a deposit made just before it, therefore does not distort the reported return of the investment strategy.
Allows meaningful comparisons
When the periods and calculation bases are aligned, TWR can be compared with an appropriate benchmark, another manager’s results or the performance of an investment fund.
Widely used reporting method
TWR is an established method for reporting investment performance and is widely understood in professional investment management.
Limitations of TWR
Does not show the investor’s personal return
TWR may differ from the return experienced by an individual client. That client’s result also depends on when and how much they deposited or withdrew.
More demanding to calculate
Calculating TWR requires a portfolio valuation at the relevant cash-flow points. Frequent transactions can therefore make the calculation more demanding.
02 · MWR
Money-weighted return
Money Weighted Return, TWR
MWR, also expressed as an internal rate of return (IRR), measures the return an individual investor has earned on the capital they actually invested. It takes account of both the timing and the size of all deposits and withdrawals.
Formula and calculation
MONEY-WEIGHTED RETURN FORMULA
Σ [CFₜ / (1 + MWR)ᵗ] = 0, за t = 0 … T
CFₜ
cash flow at time t; deposits are negative, while withdrawals and the portfolio’s ending value are positive
t
time from the beginning of the period, expressed in years
Mathematically, MWR is the discount rate at which the present value of cash inflows equals the present value of cash outflows. It shows how the timing of an investment can affect an investor’s personal result. Attempting to choose when to add or withdraw capital is commonly referred to as market timing.
A different approach is buy and hold: maintaining an investment in selected assets over a longer period, rather than attempting to identify favourable entry and exit points.
Предимства на MWR
Reflects the client’s experience
MWR shows the return the client actually earned, taking into account when and how much they invested or withdrew. It is a highly individual measure that answers the question: “How did my money perform, given my decisions about when and how much to invest or withdraw?”
Useful for goal-based planning
Because MWR reflects the investor’s cash flows, it can help a client assess their progress towards specific financial goals when considered alongside the portfolio’s current value and investment horizon.
Limitations of MWR
Depends on external cash flows
MWR is strongly affected by the timing of cash flows initiated by the client, which are outside the manager’s control. A client who makes a large deposit just before a market decline may have a significantly lower MWR than a client who invests the same amount at another time, even if the portfolio manager makes the same investment decisions for both accounts.
Not suitable for directly comparing managers
MWR is specific to each client’s pattern of cash flows. It therefore cannot, on its own, be used to compare a manager’s performance with that of another manager or a benchmark. It describes the investor’s personal result, including the effect of their deposits and withdrawals.
03 · ПРИМЕР
Example: TWR versus MWR
A hypothetical portfolio with illustrative values and one additional deposit at the end of the first half of the year.
January 1, 2025
€10,000
Portfolio value
June 30, 2025
€11,000
Portfolio value before the deposit
+€5,000
December 31, 2025
€19,000
Portfolio value
Step 1: Calculate TWR
Subperiod 1 — January 1 to June 30
Beginning value: €10,000
Ending value before the additional deposit: €11,000
Return 1 = (11,000 − 10,000) / 10,000 = 10%
Subperiod 2 — July 1 to December 31
Beginning value after the deposit: €11,000 + €5,000 = €16,000
Ending value: €19,000
Return 2 = (19,000 − 16,000) / 16,000 = 18.75%
Link the two subperiod returns
TWR = (1 + 10.0%)(1 + 18.8%) – 1 = 30.6%
Step 2: Calculate MWR
MWR takes account of the client’s additional €5,000 deposit at the end of the first half of the year. As a result, more capital was invested during the second half, when the portfolio’s return was higher.
To calculate MWR, we solve the following equation for r:
10 000 + 5 000 × (1 + r)⁻⁰·⁵ = 19 000 × (1 + r)⁻¹
Using XIRR with the specified cash-flow dates, we obtain approximately:
MWR = 32.5%
ANALYSIS OF THE RESULTS
30,6%
TWR
The portfolio return calculated without the effect of the client’s additional deposit. It shows the portfolio’s performance independently of that external cash flow.
32,5%
MWR
The client’s personal return, which takes account of the additional capital invested before the higher-return subperiod.
~1.9%
DIFFERENCE
In this example, the additional deposit was made before the subperiod with the higher return. This explains why the client’s money-weighted return is higher than the time-weighted return.
5. Summary
04 · SUMMARY
Summary
Criterion
Calculation method
Related term
Use
Interpretation
Focus
Effect of cash flows
Definition
Time Weighted Return (TWR)
Calculates the return for each subperiod between external cash flows and geometrically links those returns.
Geometrically linked return.
Used to report and compare investment strategy or manager performance with an appropriate benchmark, subject to a consistent period and calculation basis.
“How did the manager’s investment strategy perform, regardless of when and how much I deposited or withdrew?”
The performance of the investment strategy.
Removes the effect of external deposits and withdrawals on the calculated return.
Measures the compounded growth of a hypothetical €1 invested in the portfolio throughout the reporting period.
Money Weighted Return (MWR)
Calculates the discount rate (IRR) at which the present value of cash inflows equals the present value of cash outflows.
Internal rate of return (IRR).
Shows the return experienced by an individual investor, reflecting their specific decisions to add or withdraw capital.
“What return did I experience, taking into account when and how much I deposited or withdrew?”
The individual investor’s result.
The size and timing of deposits and withdrawals are central to the calculation.
Measures the investor’s personal return, taking account of the timing and size of their cash flows.
Time-weighted return (TWR) and money-weighted return (MWR) are calculated differently and answer different questions. Both measures are useful, provided their purpose and limitations are understood.