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Rolling Returns : What is it, Advantages, Difference between Trailing & Rolling Returns

  • Akarshita Yaji
  • Jan 12 2022
  • 4 minutes
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Rolling returns is an important measure of the performance of the fund over a period of time. Investors use this to make important decisions regarding potential investments and also as to whether they must keep their money locked-in a particular fund or not. Interested to know more about this metric? Read on!

What are Annualised Returns?

Annualised returns show the yearly change in the returns of a mutual fund. They are harder to calculate but can be used on a comparative basis. If the returns have to be calculated for a time period greater than one year, then annualised returns are used.

What are Rolling Returns?

It is the average annualised returns for a given time period be it a week, month or the last date of any duration.  It is also known as “rolling period returns” or “rolling time periods”. It is oftentimes used in examining the behavior of returns for holding periods. 

A holding period is known as the amount of time the investment is held by an investor, or the period between the purchase and sale of a security. It offers a better picture of performance of the fund over several periods.

Trailing 12 months (TTM) is a commonly used rolling return measure.

What are the advantages of Rolling Returns?

  • Rolling returns offers good insights to an investor or a potential investor. It shows the performance of mutual funds over a specific time period.
  • It will enable the investor to choose a fund in terms of performance and consistency.
  • The figures calculated are accurate. These figures are not biased as the period is chosen by the company.
  • It can be used to calculate returns for a recurring investment such as SIP.
  • These returns can also be used for determining the average return of the mutual funds.
  • The rolling returns data can be used as the base to calculate a number of metrics including Sharpe ratio, capture ratios, standard deviation etc.

Trailing 12 Months Rolling Returns

  • This is a commonly used measure when it comes to rolling returns.
  • The data of 12 months in a row is taken into consideration and financial figures are reported. 
  • It does not have to represent a fiscal year ending period.
  • It is less useful for short term changes. But it is a very useful tool for forecasting.
  • It is used to evaluate revenue growth, margins, key performance indicators, working capital management, etc. that may vary temporally or seasonally.

Difference Between Trailing and Rolling Returns

Trailing Returns Rolling Returns
Trailing returns measures the performance of the mutual fund for specific periods such as one, three and five years, on a date-to-date basis.  Rolling returns is used to measure returns at different points of time.
It is a form of point-to-point return and is annualised. One can use numerous blocks of three, five or ten year periods at various intervals.
Provides a transparent idea about absolute returns. It provides an idea about average returns over a period.
Does not eliminate any bias. It eliminates bias associated with returns and works on a probability basis.
It does give an indication of how the fund performed over the long run. It will give an indication of how it worked over time at specific intervals based on performance and consistency.

How is Rolling Returns a better measure?

Trailing returns have a recency bias which rolling returns do not have.

Point to point returns are specific to the period in consideration. Rolling returns, unlike point-to-point returns, measures the fund’s absolute and relative performance across all timescales.

Rolling returns erase the impact of timings and it can be relied upon to give a fair picture of the future. However, one must note that the concept of rolling returns will not play a great role in long-term returns calculation especially of equity funds. It holds greater value in the calculation of short-term funds and liquid funds.

Conclusion

Rolling return calculations can help you evaluate the performance of your mutual fund over longer periods. However, it is good to base your decision to invest or redeem a mutual fund based on other parameters like your investment horizon, investment goals, etc. 

FAQs

  1. Why should I pay attention to rolling returns?
    Rolling returns display the performance of a fund and can help you make an informed decision about the fund to invest in.
  1. Are rolling returns better than trailing returns?
    Yes because they don’t have a recency bias. 
  1. What can rolling returns help with?
    The rolling returns data can be used as the base to calculate a number of metrics including Sharpe ratio, capture ratios, standard deviation etc.
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