What Are Rolling Returns?
Rolling returns, often referred to as “rolling period returns” or “rolling time periods,” represent annualized average returns over a specified period, culminating in the listed year. These returns offer invaluable insights into the performance of investments over various holding periods, reflecting the real-time experiences of investors.
Assessing a portfolio or fund through rolling returns provides performance data that is smoothed across multiple intervals within its historical timeline. This holistic view typically delivers a more precise depiction for investors compared to analyzing isolated timeframes.
Key Takeaways
- Rolling returns are annualized average returns for a selected period, ending with the listed year.
- They help examine return behavior over holding durations experienced by actual investors.
- Rolling returns can smooth out past performance by accounting for multiple periods instead of isolated snapshots.
- Trailing 12 months (TTM) is a widely used metric for rolling returns.
Exploring Rolling Returns for Better Financial Decisions
The primary aim of scrutinizing rolling returns is to uncover the frequency and extent of an investment’s periods of strong and weak performance. Unlike typical period-ending data, rolling returns shed light on a fund’s comprehensive return history, untainted by recent short-term fluctuations.
For example, consider the five-year rolling return for 2015, which encompasses Jan. 1, 2011, through Dec. 31, 2015. For 2016, the same measure analyzes 2012-2016. Investment analysts often break down multi-year periods into a sequence of rolling 12-month spans, enhancing the granularity of historical performance analysis.
The Advantages of Rolling Returns
A 9% annualized return over a ten-year stretch may indicate that by investing on Jan. 1 of Year 0 and exiting on Dec. 31 of Year 10, you would earn 9% annually on average. However, within those ten years, returns can fluctuate significantly — for instance, a 35% uptick in Year 4 and a 17% drop in Year 8. While average returns give a broad indication, they can inadvertently mislead the nature of the investment’s performance.
Analyzing rolling returns can uncover performance trends that initiate on various start dates, such as beginning on the first of different months, consequently enriching your understanding with detailed insights. Rolling returns can reveal an investment’s high and low decades, offering a nuanced perspective.
The Relevance of Trailing 12 Months (TTM) Rolling Returns
Trailing 12 months (TTM) is a prevalent rolling return metric illustrating the most recent financial performance over a full year without aligning strictly with a fiscal year-end. By annualizing data over the past 12 continuous months, TTM effectively absorbs seasonality impacts while discounting anomalies, yielding a clearer picture.
Practical Applications of TTM Rolling Returns
Analysts favor TTM for capturing up-to-date quarterly or monthly data over outdated complete fiscal or calendar year results. TTM metric helps analysts and companies continually reevaluate significant KPIs, revenue, margins, and other financially critical metrics despite seasonal variations or temporary fluctuations.
Given the quarterly nature of financial disclosures by publicly traded companies as per GAAP, TTM evaluations often require custom calculations by pulling data from recent filings. For example, by subtracting Q1 2019 revenue from GE’s total 2019 revenue and adding Q1 2020 revenue, an analyst arrives at an illustrative $88.5 billion TTM figure, demonstrating its application in practice.
Related Terms: annualized return, holding period return, financial metrics, equity research, TTM, trailing 12 months.
References
- General Electric. “Form 10Q: For the quarterly period ending March 31, 2019”.
- General Electric. “Form 10Q: For the quarterly period ending March 31, 2020”.
- General Electric. “2019 Annual Report”.
