Calculating Rolling Returns

Tricky Selection

Choosing a portfolio – can get really tricky especially considering the non linear nature of markets.

Let’s say you want to subscribe to a portfolio. You stumble across one which reads : “3 Year Returns = (+110%)” 

You think “Wow – My money doubles in 3 years. This is phenomenal. Let me invest into this one”

3 Years Later . . .

At the end of Year 03, you see that your portfolio’s net returns are (+30%) compared to the massive (+110%) the portfolio had achieved in the 3 years prior to your start. You start looking for reasons as to why this happened.

Market corrections ? Weakness in fund inflows ? Economic Issues ? Wrong timing ? Bad portfolio ? Well the reason could be anybody’s guess. But you are now DETERMINED to dig a little bit deeper to understand how this portfolio did in the past.

Introducing Rolling Returns

Rolling returns are one of the best metrics out there that can help you understand the behavior of the portfolio or index over a period of time rolled into a continuous time frame

The objective of showcasing rolling returns is to understand the stronger and weaker sections of performance over a period of time. We will understand this better as we roll.

In this blog, we will try to explain (a) Rolling Absolute Returns & (b) Rolling CAGR (Compounded Annual Growth Rate).

But before that us take a look at the formula to calculate Absolute Returns (Total returns for a period) & CAGR (Average Annualized Returns for a period)

Let’s now understand how rolling returns is plotted using the example below.

The image above helps us understand the absolute returns we got for that portfolio between 2010 and 2013. The portfolio started at 100 and ended the three year period at 120 thus yielding an absolute return of (+20%) & a CAGR of (+6.3%)

Moving on to the year 2014. When you say that the 3 year absolute returns of the portfolio in 2014 is (+54%) ,it signifies the total returns generated by the portfolio for a period of 3 years up until 2014. Similarly the CAGR on the portfolio in for the same 3 year period ending in 2014 was (+15.5%) , and so on.. When you plot this on a chart, you will be able to understand a portfolio’s stronger & weaker periods. You can watch the below video if you need more clarity on this.

Rolling Returns on 4 of our currently most popular WeekendInvesting Portfolios

We have plotted both 3 year Rolling Absolute Returns & 3 year Rolling CAGR of some of the WeekendInvesting Portfolios and compared them to their respective benchmark Indices.

What you shall clearly notice is that – All portfolios have outperformed their respective benchmark indices by very comfortable margins due to their characteristics of sticking with the strongest stocks at all times. This enables outperformance both during upside & downside. During up-trends, sticking to the strongest stocks that show momentum ensures that the returns from portfolio are maximized while the same concept ensures a lower fall at the portfolio level when markets weaken (since strong stocks tend to fall lesser compared to the overall index)

Mi NNF 10

Mi NNF 10 is a 10 stock rotational momentum based strategy that aims to stick with the strongest 10 stocks from the Nifty Next 50 universe (51st to 100th stock).

Mi_NNF10 Momentum smallcase by Weekend Investing

Mi EverGreen

Mi EverGreen has been designed to be your core companion portfolio for long term wealth creation with a 75% allocation to Equity & 25% allocation to GOLD ETF. The equity allocation corresponds to a 20 stock rotational momentum strategy that tries to extract alpha from the CNX 200 universe (Nifty Top 200 stocks) using principles of rotational momentum.

Mi EverGreen smallcase by Weekend Investing

Subscribers of any WeekendInvesting Smallcase (2019 – 2021) will be entitled to a SPECIAL 20%. Please use code EVERGREEN20

Mi 20

Mi 20 is another rotational momentum based 20 stock portfolio that tries to extract momentum from the Mid-Small 400 universe.

Mi20 smallcase by Weekend Investing

Mi 35

Mi 35 is a 35 stock – rotational momentum based strategy that aims to generate alpha from the Smallcap 250 universe.

Mi35 smallcase by Weekend Investing

The Worst Possible Scenario was . . .

Not so bad if you take a closer look. Let me explain.

Let’s say you invested in the worst possible time. The worst 3 year absolute rolling returns & absolute CAGR came around 31 Mar 2020. So you may be under the impression that the unluckiest ones would be those who started their journeys around 31 Mar 2017. Hold your thought right there. Markets sprung up post COVID thus resulting in very solid returns albeit starting at the worst time possible.

We will explore this in depth in another blog soon. . . .

But if you are a WeekendInvestor . . .

Do come in with a mindset to stay invested for at least 3-4 years. All portfolios of ours are designed to beat the markets over a longer period both on the upside and downside. We explained this phenomenon in the video below. Do watch if you haven’t yet.

Before you go, do check out our Smallcases and also some of the IMMENSE LOVE we received from FELLOW WEEKENDINVESTORS. If you have any questions, please write to support@weekendinvesting.com and we’ll try to get back in no time..

We hope to see you soon on the inside.

Wish you a great investing journey – Enjoy Life to the Fullest

Adios !!

Team WeekendInvesting