- September 1, 2014: Vol. 26, Number 8

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Many happy returns: Putting time-weighted and dollar-weighted indices on the scale

by Jeffrey Fisher


The NCREIF Property Index, one of the industry’s most respected benchmarks, is based on time-weighted returns, or TWR. The return for each individual quarter can be interpreted as an estimate of an internal rate of return for that property for the quarter. The quarterly returns are then chain-linked such that each quarter weighs the same in the calculation of a return over time, such as an annualized or since-inception return.

Thus, TWRs do not consider whether more or less capital is invested during different time periods. The rationale for this is that the manager may not have control over the amount of capital that can be invested in any given quarter. TWRs are considered an appropriate measure of returns for open-end funds where the manager may have different amounts of capital available to invest each quarter.

In contrast, internal rates of return do consider the amount of investment in a property over time. For this reason, IRRs are so

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