Which returns appear on an investment performance report?

Our response:

Your firm is required to provide you account statements which must include an investment performance report. When a firm provides an investment performance report, it is required to show the amount of annualized total percentage return of your account net of charges, using a money-weighted rate of return calculation.

A firm can provide percentage returns calculated using both money-weighted and time-weighted calculations. If a firm uses both calculations, the firm should explain in plain language the difference between the two sets of performance returns.

Money-Weighted Rate of Return (MWRR) versus Time-Weighted Rate of Return (TWRR)

Money-Weighted Rate of Return – Measures the unique performance of your investment account. It considers the effect of size and timing of your cash flows (your contributions and withdrawals) and includes dividends, interest income and the returns of underlying investments. A MWRR may be referred to as a personal rate of return. It is calculated on a per account basis (such as Margin, TFSA, RRSP, or RESP, etc.) and is not used as a measure to compare investments. This measure of return reflects not only the performance of your investments in those accounts, but also your own trading activities, contributions, redemptions and asset allocation.

Time-weighted return – Measures only the performance of the underlying investments in your portfolio (such as a mutual fund) and ignores the impact of cash flows (when you contribute or withdraw money). It’s a good indicator of how well an underlying investment performed over time. A TWRR is used as a measure to compare the performance of different investments like a stock, a bond, a fund, a benchmark or a portfolio of investments. It’s not an appropriate measure for your personal rate of return for an individual investor account.