An investor, Ms. Peterson, actively contributes to her mutual fund account at irregular intervals, sometimes adding large sums and other times small amounts. She is trying to evaluate the skill of her fund manager. Which performance measurement method would be most appropriate for her to assess the manager's investment decisions, independent of her own cash flow timing?

Question: An investor, Ms. Peterson, actively contributes to her mutual fund account at irregular intervals, sometimes adding large sums and other times small amounts. She is trying to evaluate the skill of her fund manager. Which performance measurement method would be most appropriate for her to assess the manager's investment decisions, independent of her own cash flow timing?

Answer options:

• Money-weighted rate of return. ✅ Time-weighted rate of return.
• Simple arithmetic mean return.
• Nominal rate of return.

Correct answer: Time-weighted rate of return.

Explanation: The time-weighted rate of return (TWRR) is used to measure the performance of a portfolio manager, as it neutralizes the impact of cash inflows and outflows. It isolates the investment decisions from the timing of investor contributions.