Rolling Returns

Rolling returns, also known as "rolling period returns" or "rolling time periods," are annualized average returns for a period, ending with the listed year. Rolling returns are useful for examining the behavior of returns for holding periods, similar to those actually experienced by investors.

One goal of rolling returns is to highlight the frequency and magnitude of an investment's stronger and poorer periods of performance. Rolling returns can offer better insight into a fund's more comprehensive return history, not skewed by the most recent data (month or quarter-end). For example, the five-year rolling return for 1995 covers Jan. 1, 1991, through Dec. 31, 1995. The five-year rolling return for 1996 is the average annual return for 1992 through 1996. Some investment analysts will break down a multi-year period into a series of rolling twelve month periods. 

By looking at rolling returns, investors are able to understand how a fund's returns stacked up at a more particular point in time. If an investment displays an 9% annualized return over a 10-year period, this shows that if you invested on Jan. 1 in Year 0, and sold your investment on Dec. 31 at the conclusion of Year 10, you earned the equivalent of 9% a year. Yet during those 10 years, returns could have varied drastically.

In Year 4, the investment could have moved up 35%, while in Year 8 it could have dropped 17%. Averaged out, you earned 9% per year (the “average annualized” return), yet this 9% might misrepresent the investment’s performance. Analyzing rolling returns instead could demonstrate annual performance not simply starting Jan. 1 and ending Dec. 31 but also beginning Feb. 1 and ending Jan. 31 of the next year; March 1 through Feb. 31 of the next year, and so on. A 10-year rolling return could highlight an investment’s best and worst decades in this form.

Another way to view rolling returns: the trailing three-year return of a fund spans just one set period; however, looking at this same fund’s rolling returns would give performance results for every three-year period throughout its history. Such information often paints a more accurate picture for an investor.