TWR: time-weighted return
TWR (Time-Weighted Return) measures how the investment strategy itself performed — without distortions from when and how much you deposited or withdrew. It is the manager's "fair" return.
What TWR is
If you happened to add a large sum right before the market rose, your personal result (XIRR) will grow — but that is the merit of timing, not of the strategy. TWR removes this effect: it shows the cumulative growth of a single notional ruble that stayed in the portfolio for the entire period. That is why TWR is the standard for assessing strategy performance and for comparison with a benchmark.
Formula
The whole period is split into sub-periods by the dates of external deposits and withdrawals. The sub-period returns are multiplied together (geometric linking):
Because each deposit/withdrawal "resets" the base of the new sub-period, the size of a deposit does not affect the final TWR — only the market dynamics of the assets do.
Calculation example
The portfolio at the start is 500 000 ₽. After six months it grew to 560 000 ₽, and you added another 200 000 ₽ (it became 760 000 ₽). By the end of the year the portfolio is worth 800 000 ₽.
| Sub-period | Start | End | Rj |
|---|---|---|---|
| 1 (before the deposit) | 500 000 | 560 000 | +12.00% |
| 2 (after the deposit) | 760 000 | 800 000 | +5.26% |
TWR = (1 + 0.12) × (1 + 0.0526) − 1 = +17.9%. Note: the 200 000 ₽ deposit did not "dilute" the return — TWR reflects only the work of the assets.
How Firewire calculates it
Firewire automatically determines the sub-period boundaries from your external cash flows, revalues the portfolio at each boundary at market prices and geometrically links the returns. The value at the end of a sub-period includes the market valuation of all positions and the cash balance. Firewire calculates TWR and XIRR simultaneously, so you see both pictures.
TWR or XIRR: what to look at
| TWR | XIRR | |
|---|---|---|
| What it measures | Strategy performance | The result of your money |
| Effect of deposits | Excluded | Included |
| What for | Comparison with a benchmark | Personal return |
Look at TWR when you compare yourself with an index (for example, MCFTR) or with someone else's strategy. Look at XIRR when you want to know the real return of your own investments, timing included.