Why is there a conflict between my absolute return and return in percentage?

Why is there a conflict between my absolute return and return in percentage?

Time-Weighted Return (TWR) vs Absolute Return

Time-Weighted Return (TWR)

To calculate return as a percentage, Totality Capital Markets applies the industry-standard TWR methodology.

• TWR is calculated as the compounded return of daily returns over the evaluation period (e.g., 1 year).

• This approach ensures returns are measured independently of cash inflows and outflows, making it a common metric for assessing investment performance.

‍Absolute Return

Absolute Return measures performance by comparing the Account Value at time (t+1) vs Account Value at time (t), while adjusting for:

• Account funding (deposits)

• Account withdrawals

Potential Conflict Between TWR and Absolute Return

TWR does not consider portfolio size when calculating sub-period returns:

• If sub-periods with low account value show high positive returns, while sub-periods with high account value experience slightly negative returns, the total TWR may still be positive.

• However, the Absolute Return over the same period could be negative, leading to a discrepancy between the two metrics.