Unveiling Rolling Returns: Definition, Benefits, and the Latest Insights

Gain an understanding of Rolling Returns in the investment landscape. Explore their definition, benefits, and other insights.
Unveiling Rolling Returns
3 min
29 February 2024

Rolling returns, also known as rolling time periods or rolling period returns, represent the annualised average returns concluding on a specified year. These returns play a crucial role in understanding the return characteristics over a holding period, offering valuable insights to investors.

Analysing the rolling returns of mutual fund schemes or portfolios sheds light on their historical performance during a specific timeframe. This detailed data provides investors with more accurate information, allowing them to assess performance across various time periods rather than relying on a single snapshot. Rolling returns serve as a tool to enhance the clarity of historical performance over multiple intervals.

Understanding Rolling Returns

Rolling returns, also referred to as "rolling period returns" or "rolling time periods," represent the average annualised returns for a specific duration, whether it is a week, month, or any defined period's endpoint. They are frequently employed to analyse how returns behave over different holding periods.

A holding period signifies the duration an investor retains an investment, spanning from its purchase to sale. This metric provides a clearer understanding of a fund's performance across multiple periods. The Trailing 12 months (TTM) stands out as a widely utilized measure for rolling returns.

What is Trailing 12 months (TTM) Rolling Returns?

Trailing 12 Months Rolling Returns is a widely adopted measure in assessing rolling returns. It involves analysing financial figures over a continuous 12-month period, irrespective of whether it aligns with the end of a fiscal year. While it may not effectively capture short-term fluctuations, it proves invaluable for forecasting purposes.

This metric aids in evaluating various aspects such as revenue growth, margins, key performance indicators, and working capital management, which may exhibit temporal or seasonal variations.

Advantages of Rolling Returns

  • Insight into long-term performance: Rolling returns offer a comprehensive view of an investment's performance across various market cycles, enabling investors to evaluate its long-term potential and sustainability.

  • Risk assessment: By analysing rolling returns, investors can assess the volatility and risk associated with an investment over different time frames. This allows for a more informed decision-making process and better risk management strategies.

  • Diversification evaluation: Rolling returns help investors evaluate the effectiveness of their diversification strategies by assessing the performance of individual assets or portfolios across diverse market conditions.

  • Performance comparison: Rolling returns enable investors to compare the performance of different investments or investment strategies over time, facilitating better allocation of resources and portfolio optimization.

Difference between Trailing and Rolling Returns

Trailing Returns

Rolling Returns

Trailing returns assess the mutual fund's performance over specific periods like one, three, and five years, calculated from one date to another.

Rolling returns gauge returns at various time points, offering insights into the fund's performance across different periods.

It represents a type of point-to-point return that is annualised.

Multiple blocks of three, five, or ten-year periods can be utilised at different intervals for analysis.

Offers clear insight into absolute returns.

Offers insight into average returns across a timeframe.

Provides an indication of the fund's long-term performance.

Indicates how it performed over time at specific intervals, considering performance and consistency.

 

Conclusion

In conclusion, rolling returns serve as a valuable analytical tool for investors seeking to gain deeper insights into the performance of their investments. By embracing the dynamic nature of rolling returns, investors can make informed decisions, mitigate risks, and optimise their investment portfolios for long-term success.