Using rolling returns over a three- to five-year cycle

By Janice Roberts

Enhancing returns on cash using money market funds

With the myriad of data available to investors when selecting which fund best suits their investment profile, it is difficult to know which data point to use. Rolling returns, however, give a clearer track record of how a fund has performed and potentially how it will perform in the future.

Brian du Plessis, director of distribution and client relationships at Rezco Asset Management, says rolling returns measure the performance of a fund as far back as the data is available in order to better demonstrate a fund’s good and bad performance periods.

Du Plessis says, “Rolling returns can help investors look past current performance data and see how it has performed over a far longer period of time. If one looks only at a one-year track record, also known as trailing returns, this simply offers a snapshot at a moment in time, while rolling returns also account for various overlapping periods, similar to slowing down a movie to study it frame by frame. By observing a fund’s rolling returns, an investor is more accurately able to gauge the consistency of a fund’s performance over time.

“Often trailing returns will not take into consideration how a fund has performed during the ups and downs of market cycles, which are an important test of a manager’s skill and ability. Simply put, rolling returns draw on so many more data points than trailing returns, which means they can reveal important differences, even when the funds have similar cumulative returns. As a result, an investor is given far more insight into how the ‘cake was baked’.”

Rolling returns therefore enable an investor to judge an asset management company over both bull and bear markets, he says. “During periods of high volatility, rolling returns also paint a robust picture for evaluating a manager’s performance. This is particularly useful compared to trailing returns when one bears in mind that by simply shifting the performance date range by one or two months, the manager can paint a very different picture.

“The fund might have had a dismal return for a month that has just fallen outside the time period used to calculate the trailing return and therefore painting an inaccurate picture of the fund’s consistent ability to generate the returns calculated.”

Du Plessis says a good asset management company should be able to provide an investor with both trailing returns and rolling returns over various time periods for their various funds.

“A fund manager who is not willing to provide the returns upon request should raise a few questions in the investor’s mind,” concludes Du Plessis.


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