Olympic standard for managers
GIPS performance reports rely on time-weighted return because it strips out the impact of client deposits and withdrawals—so managers can’t “win” by timing cash calls.
Fair-score rule
Time-Weighted Return (TWR) — Exact Linking or Modified Dietz
Inputs
TWR links returns between valuation dates and neutralizes cash-flow timing.
Valuation & Flow Table
Enter one row per valuation date. For each row after the first, set the market value and the net external flow that occurred since the prior valuation (positive=inflow, negative=withdrawal).
For Modified Dietz, optionally add a flow weight (0–1 fraction of the period the cash was invested) or a number of days.
| Date | Market value | Net flow since prior | Flow weight (0–1) | Flow days |
|---|
Tip: You can paste CSV/TSV lines into cells in order:
Date,Value,Flow,Weight,Days.Results
Total TWR
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Annualized (CAGR)
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Periods linked
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Span (days)
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Subperiod details
| From | To | Value₀ | Flow | Value₁ | Weight | rᵢ |
|---|
📈 5 Fun Facts about Time-Weighted Return
Order doesn’t matter
When you link subperiods, the geometric product makes the same total TWR no matter how you reorder the periods—unlike arithmetic averages that depend on sequence.
Geometric magic
Dietz was space-age
Peter O. Dietz coined the Modified Dietz method in the late 1960s—the same era NASA was landing on the Moon. It’s still the go-to shortcut when daily valuations are missing.
History
One missed valuation can swing it
If a volatile day is absent from the valuation schedule, TWR can look rosier or harsher than reality. Daily data keeps the “link” honest.
Data quality
Flow immunity isn’t free
Neutralizing cash-flow timing demands more valuations. The payoff is a return that isolates skill, but the cost is keeping a cleaner book of daily (or at least frequent) prices.
Trade-off
Time-Weighted Return vs. Modified Dietz (Quick, Friendly Guide)
Time-Weighted Return (TWR) neutralizes the effect of your deposits and withdrawals by measuring performance only from market moves. You split the history into subperiods between valuation dates, compute each subperiod’s return excluding external cash flows, then link them multiplicatively: \( (1+r_1)\cdot(1+r_2)\cdots(1+r_n)-1 \).
- Subperiod TWR (linking): assumes flows occur exactly at valuation points, so the subperiod formula is \( r_i = \frac{V_1 - V_0 - F}{V_0} \).
- Modified Dietz: when flows happen inside the period and you don’t have daily valuations. Use \( r_i = \frac{V_1 - V_0 - F}{V_0 + wF} \) where \( w \) is the fraction of the period that the average flow was invested (or use days/periodDays).
After linking, you can annualize over the exact day count: \( \text{CAGR} = (1+\text{TWR})^{365.2425/\text{days}} - 1 \). TWR is standard for manager/fund performance because it isolates skill from the timing/size of client cash flows.
Educational only — not financial advice. Fees, taxes, pricing sources, and valuation timing can affect results.