Derivation of the DTWR Formula

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Based on customer input, Albridge Solutions considered upgrading its software to provide expanded calculation options for performance reporting. Clients were asking for Internal Rate of Return as well as some form of time-weighted return, which would be most useful for clients with managed accounts.

Author: Trevor Davies, CFA, Albridge Solutions

Based on customer input, Albridge Solutions considered upgrading its software to provide expanded calculation options for performance reporting. Clients were asking for Internal Rate of Return as well as some form of time-weighted return, which would be most useful for clients with managed accounts. This article describes the decision process and derivation of the DTWR formula that was developed by Albridge Solutions between 2002 and 2005. DTWR, along with IRR and Modified Dietz claculations, were introduced as performance reporting options in early 2007.

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