Time-weighted as opposed to dollar-weighted return captures rate of return actually earned by the portfolio manager.

Question

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The time-weighted return calculates the compounded growth rate of the portfolio over a specific time period, while ignoring the impact of cash inflows and outflows. This method captures the rate of return actually earned by the portfolio manager, as it is independent of external factors such as timing and amount of cash flow. In contrast, the dollar-weighted return considers the impact of cash flows and reflects the actual return earned by the investor.

Time-Weighted as Opposed to Dollar-Weighted Return Captures Rate of Return