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What Are Rolling Returns?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 23 November 2016
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    Conjecture Corporation
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Rolling returns provide information about the return on an investment in a series of overlapping time periods, annualized to standardize results. This can highlight aspects of the larger picture which may not be readily apparent by looking at other forms of return data. Investors can calculate their own, or use a tool that will do it for them; many investing websites have this data available, for example. Some companies may also discuss rolling returns in their annual reports, although they should be reviewed with a note of caution.

When looking purely at annual returns, it may be possible to miss patterns; one year, a firm may do very well, for instance, because it had several very strong months and a few bad ones. With rolling returns, the investor calculates annualized returns for a set of consecutive periods, like 2008-2013, and then looks at another set, 2009-2014, 2010-2015, and so forth. This particular example involves five year rolling returns, where the investor looks at performance over the course of five years.

These deeper data can provide more important contextual information. The investor looks not just from year to year, but period to period, like performance from March to March and April to April. This can help people see patterns that would be buried in other forms of data. For example, a firm that appears to have mediocre performance might actually emerge as a strong, consistent investment that is less subject to volatility in the long term.

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This approach to investment analysis is best suited to long-term investments. For people looking at short term options, it can be less appropriate. In addition, people should review rolling returns carefully to see if they are being manipulated to appear more favorable. Start and end dates may be chosen with a calculated agenda in mind, like skipping over a bad period that might skew results. When rolling returns are used to present information about an investment, it may be a good idea to expand the parameters to see if the picture is still as sunny after a longer period.

Charts of rolling returns for major investments and market indices are often available for free from financial publication. Websites dedicated to investor research and education can allow people to select from a range of investments and periods to generate their own charts of rolling returns using archival data that may stretch back for decades. These can be helpful for people considering large, long-term investments.

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