How does Asora calculate TWR?
Understanding Your Investment Performance: Time-Weighted Return (TWR)
What is Time-Weighted Return (TWR)?
Time-Weighted Return (TWR) is a standard method used to evaluate the performance of an investment portfolio by neutralizing the impact of cash flows (like deposits and withdrawals). It focuses solely on the investment strategy's effectiveness—not on the timing or size of contributions.
At Asora, we calculate daily TWR, which offers a highly accurate, time-sensitive picture of your portfolio’s performance.
How TWR is Calculated on Asora
Our engine uses a precise, industry-standard methodology that ensures consistency and accuracy:
1. Daily Valuation
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TWR is calculated daily, with each day's return measured and then geometrically linked to form a continuous performance series over time.
2. Transaction Categorization
Transactions are classified to distinguish true cash flows from income and expenses:
| Type | Included Items | Treatment in TWR |
|---|---|---|
| Inflows | Deposits, assets moved into the account | Cash flow |
| Outflows | Withdrawals, assets moved out of the account | Cash flow |
| Income | Dividends, interest | Included in performance (positive return) |
| Expenses | Management fees, custody fees | Treated as negative income, reducing performance |
Note: Expenses are not treated as cash outflows. Instead, they directly reduce daily returns, which ensures a more accurate reflection of actual performance.
3. Cash Flow Adjustment (Mid-Day Assumption)
To prevent distortion from external cash flows:
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Cash flows are assumed to occur mid-day
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We apply a weighted adjustment:
Adjusted Cash Flow = 0.5 × Total Daily Cash Flow -
This adjustment affects both the opening and closing values for that day
4. Daily Return Formula
Each day’s return is calculated using:
TWR Daily Return = (Adjusted Closing Value + Net Income) / Adjusted Opening Value - 1
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Net Income includes both:
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Positive income (dividends, interest)
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Negative income (fees, expenses)
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This method ensures fees are reflected immediately in performance results.
5. Currency Treatment
We separate currency effects to give a clearer picture of underlying performance:
| Return Type | Description |
|---|---|
| Total Return | Includes both investment performance and FX movements |
| Pure Return | Strips out FX impact using a consistent exchange rate |
6. Geometric Linking of Daily Returns
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Each daily return is geometrically linked to the previous day’s result
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The final result represents the cumulative TWR over the selected period
TWR in Action: Single Account vs. Full Portfolio
Individual Account Performance
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Based on that account’s daily market value, income, expenses, and cash flows
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Calculated independently using the same TWR method
Consolidated Portfolio Performance
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We aggregate daily values (market value, income/expenses, and flows) across all accounts
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The same TWR methodology is applied to this consolidated data
Benefits of Daily TWR
| Benefit | Description |
|---|---|
| High Precision | Daily granularity captures all market movements |
| Transparent FX Treatment | See investment results with or without currency effects |
| Immediate Fee Impact | Expenses reduce performance on the day they occur |
| Robust Transaction Handling | Each transaction type is carefully categorized for accurate performance |
| More Accurate Flow Timing | Mid-day assumption better reflects real-world behavior than end-of-day estimates |
Summary
Time-Weighted Return provides a clean, unbiased view of your portfolio's true investment performance. By neutralizing the timing of deposits, withdrawals, and accounting for fees properly, our daily TWR calculation ensures you get an accurate, reliable, and insightful view of how your investments are really performing.