Money-Weighted Return (MWR)
Money-weighted return is a measure of return that is used to evaluate the performance of investment decisions and portfolio returns. The amount and timing of an investment are decisive for the level of return.
Calculation of the money-weighted return
The calculation formula that leads to the money-weighted return cannot be easily resolved manually. The approximation method searches for the correct value for the variable “MWR” until the correct figure is found.
| Day | Remark | Deposit and withdrawal |
| 1 | Deposit | -100 CHF |
| 2 | Back payment | – 100 CHF |
| 3 | Current portfolio value that you could theoretically obtain | + 184 CHF |
| MWR | -5.432 %* |
The MWR can be found in Excel using the formula “IKV”. To do this, the cash flows must be listed one below the other as shown in the table above. For example, the formula is: “=IKV(C2:C4)”.
This results in a money-weighted return of minus 5.432 percent. This is a daily return because we have worked with the days above. The daily return can then be converted into a monthly, quarterly, or annual return figure as required.
The formula “XINTZINSFUSS” can be used for payments that are not evenly distributed over time.
Advantage of the money-weighted return
Because the MWR takes into account the amount and timing of investments, it is close to the actual performance of the portfolio in francs and centimes.
You can see what we mean in the following table: The effective performance of the portfolio already used above is minus 16 francs. On average, you have therefore lost just over five francs per day. If we say that the daily performance in percent is minus 5.432, this is relatively consistent. This is in contrast to the time-weighted return, which performs plus 5 percent for the table below.
| Day | Deposit and payment* | Initial value | Final value | Profit / Loss |
| 1 | + 100 CHF | 100 CHF | 110 CHF | + 10 CHF |
| 2 | + 100 CHF | 210 CHF | 172 CHF | – 38 CHF |
| 3 | – 100 CHF | 72 CHF | 84 CHF | + 12 CHF |
| Total | – 16 CHF |
Disadvantages of the money-weighted return
The disadvantage of the money-weighted rate of return is the complicated calculation method, which makes it difficult to recalculate the reported performance. Another disadvantage is that it does not allow a comparison of different investment strategies. This is because deposits and withdrawals influence the return.