Trailing Returns Look Back. Rolling Returns Look Deeper
Rolling Returns and Trailing Returns are a way to measure the performance of the investment over a period of time. Trailing returns assess the fund for a fixed period of time like one, three and five years, while rolling returns track the performance at various points that update till the time concludes.
To determine the performance of a mutual fund follow its rolling returns and trailing returns. When you are able to analyze the significance of rolling and trailing returns, their differences and shortcomings, it is easy to swiftly assess and evaluate the past performance of a mutual fund and predict its future.
Rolling Returns
What is Rolling Returns in a mutual fund?
Rolling return is the average return of a mutual fund during specific period of time that gives entire assessment of the funds performance. It provides continuous performance of a fund. Rolling returns are accurate and the best parameter for predicting the future performance of the mutual fund.
Rolling returns take into account on daily basis of the fund’s performance and offers the average for that particular time period.
Uses and Features of Rolling Returns:
- It acts as an indicator of the average return of a fund in a particular given time.
- It has minimum margin error as it is calculated on daily basis.
- It provides wider scope of understanding about the performance of a mutual fund which can help to make a prediction about the funds future performance.
- The assessment derived from the rolling return is accurate.
TRAILING RETURNS
Trailing returns are point to point returns provided by a mutual fund. It is not a reference to the fund’s average performance. Trailing returns are used to calculate the funds profit or loss.
Trailing return is little helpful to get detailed assessment of the fund. It should be used carefully while assessing the overall performance of the fund and predict the future performance of the fund.
Uses and Features of Trailing Returns
- Trailing returns is an indicator of the performance of the mutual fund. It does not calculate the average performance of the mutual fund.
- It provides the exact assessment of the funds performance between two particular points in time by giving specific data about profit or loss.
- It is easy to understand about the profit or loss of the fund.
- It does not provide in-depth understanding of the funds performance.
Rolling Return Calculation:
Rolling Returns Formula: The Short Version
The main idea is the same as calculating a regular return, but you do it over and over again.
The simplest formula for a rolling return over a specific period (say, a 1-year rolling return) is:
Trailing Returns Formula
When the trailing period is less than one year (e.g., 3 months, 6 months, or Year-to-Date (YTD)), the calculation yields the Absolute Return.
Where:
- Ending Value ($V_E$): The Net Asset Value (NAV) or price on the most recent date (today).
- Beginning Value ($V_B$): The NAV or price at the start of the specific trailing period (e.g., 6 months ago).
Key Difference from Rolling Returns
While the internal calculation is the same as a single-period rolling return, Trailing Returns are static: they provide a single snapshot of performance up to the present date for a few fixed periods (1Y, 3Y, 5Y). Rolling Returns, by contrast, generate a series of overlapping returns (e.g., calculating the 3-year return every month for the last 10 years), providing a better view of consistency and volatility over time.
You can learn more about how different types of returns are calculated in this video: Annual vs Trailing vs Rolling Returns Explained. This video clarifies the distinctions between various methods of measuring investment performance.
Difference between Trailing Return and Absolute Return
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The mathematical formula for calculating an absolute (point-to-point) return and a trailing return is fundamentally the same only if the trailing period is less than one year.
However, if the trailing period is one year or longer, the formula is different because the trailing return is annualized.
1. When the Formulas are the SAME: Absolute Return
The formula for the Absolute Return measures the total, non-annualized growth over a specific period. A Trailing Return uses this exact formula when its look-back period is less than 12 months (e.g., 3-month trailing, 6-month trailing, or Year-to-Date).
Absolute Return = Trailing Return < 1 year = Ending Value -Beginning Value /Beginning Value
- Example: A 6-month trailing return of 10% means the investment grew by 10% over the last 6 months. It is the absolute return for that period.
When the Formulas are DIFFERENT: Annualized Trailing Return
When the trailing period is one year or longer (e.g., 3-year trailing, 5-year trailing), the financial industry standard is to calculate the Annualized Trailing Return using the Compound Annual Growth Rate (CAGR) formula.
The purpose is to give you the average yearly growth rate over the multi-year period, allowing for easy comparison with other annual metrics.
| Metric | Formula | Purpose |
| Absolute Return (Over N Years) | ({V_E – V_B}/{V_B} | Total, non-annualized growth over the entire multi-year period. |
| Trailing Return (Over >\ 1 Years) | {V_E}{V_B} \)^{( \frac{1}{N})} – 1 | Average annual compounded growth rate over the multi-year period. |
Key Takeaway:
- Absolute Return is the total gain/loss (e.g., “I made 50% over 5 years total”).
- Trailing Return (Annualized) is the average yearly gain (e.g., “I made 8.45% per year over the last 5 years”).