Though calendar-year returns are among the more common measurements of a portfolio’s performance, rolling returns arguably offer a more compelling story. They provide a particularly robust analytical tool for evaluating manager performance, especially during volatile periods.
When evaluating fund performance, it is common practice to review results for the most recent year (often the calendar year) along with its related longer-term trailing periods.
However, a calendar-year return is not necessarily any more or less important to consider than any other 12-month period (or related trailing period) during a manager's tenure.
It is also true that few investors buy mutual funds on New Year's Eve and then sell exactly three (or five or 10) years later. Of course, the reality is that trailing returns ending last month or last quarter are the most commonly available and easily comparable results, so these otherwise arbitrary periods drive investor decisions and flows.
Keeping in mind that investors will buy and sell at any time throughout any given year, we think it makes sense to examine performance over a larger series of dates.
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Rolling returns offer a more effective measure because they offer such an accurate and in-depth picture of a portfolio's performance.
Rather than "point-in-time" results anchored by the end of the month or quarter, rolling returns account for the fact that investors typically did not invest at the beginning of the current three- or five-year period but instead are in fact investing over many periods.
So instead of assuming that an investment was made on January 1, three-year rolling returns calculate all of the three-year periods starting not only in January but also in February, March, April, etc.
Likewise, a five-year rolling return accounts for all of the five-year returns beginning at a given inception date and advancing one month sequentially. This method allows an investor to evaluate the consistency of a fund's performance over time—including the ups and downs of market cycles, which are an important test of a manager's skill.
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Rolling returns provide a particularly robust analytical tool for evaluating manager performance, especially during volatile periods when simply shifting the performance date range one or two months in either direction can paint a very different picture.
View The Royce Funds Performance over Rolling Returns periods
Important Disclosure Information
This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. All indexes referenced are unmanaged and capitalization weighted. The Russell 2000 is an index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 index. The Russell Microcap Index includes 1,000 of the smallest securities in the small-cap Russell 2000 Index, along with the next smallest eligible securities as determined by Russell. The Russell Global Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks. The Russell Global ex-U.S. Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks, excluding the United States. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.
