How is the rate of return on your investments determined?

There are two ways to determine the performance of an investment portfolio.

IF YOU WANT TO COMPARE THE RATES OF RETURN OF DIFFERENT FUNDS AGAINST EACH OTHER OR AGAINST THE INDICES

Use the time-weighted rate of return (TWRR)

Because it takes into account:

the gains realized by the fund
the income realized by the fund

IF YOU WANT TO FIGURE OUT YOUR OWN RATE OF RETURN OVER DIFFERENT PERIODS OF TIME

Use the money-weighted rate of return, or personalized rate of return (PRR)

Because it also takes into account the moment and the amount of:

your deposits
your withdrawals

How each rate of return is calculated

For example

Suppose that at the beginning of the year, Investor A and Investor B each have $10,000 invested in the same mutual fund. Let’s now imagine this scenario:

FUND PERFORMANCE

What Investors A and B did during the year

	Investor A	Investor B
Value at the beginning	$10,000	$10,000
Q1	No deposit or withdrawal	No deposit or withdrawal
Q2	No deposit or withdrawal	No deposit or withdrawal
Q3	New deposit or withdrawal of $ 5,000	No deposit or withdrawal
Q4	Aucun dépôt ni retrait	No deposit or withdrawal
Value at at the end	$16,068	$10,818

Results

The Fund

Investor A

Investor B

The personal rate of return (PRR) of Investor B is the same as the fund’s rate of return (TWRR) because he or she made no transactions during the year.

The personal rate of return (PRR) of Investor A is higher because he or she made a purchase just before a quarter that offered a strong, positive return.

To sum it all up

If You Make NO transactions
Before a period of positive performance Your PRR will be identical to the time-weighted rate of return	Before a period of negative performance Your PRR will be identical to the time-weighted rate of return
if you buy units
Before a period of positive performance Your PRR will generally be higher than the time-weighted rate of return	Before a period of negative performance Your PRR will generally be lower than the time-weighted rate of return
If you sell units
Before a period of positive performance Your PRR will generally be lower than the time-weighted rate of return	Before a period of negative performance Your PRR will generally be higher than the time-weighted rate of return

KEEP IN MIND

Since December 31, 2016, the money-weighted rate of return, or PRR, is used by the investment industry to display your personalized rate of return on your portfolio statement and on your annual Report on Investment Performance.

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