Question: How to annualize returns since inception as of mid returns, example, around

karoliukas

Quick questions…
How would you get the annualized returns for a fund that’s been around for 3.5 years.  We will say, for example, it began on January 1 of 2010 and today is June 30 of 2013.  Also for the sake of example let’s say these are the returns:
2010: 13%
2011: -2%
2012: 15%
2013 (Year to date): 8%
How would you get annualized returns since inception?  What would they be in this example?

jcfa2011

^9.53%
[(1.13)*(0.98)*(1.15)*(1.08)]^(12/42)-1

thommo77

Thanks.  That’s what I thought as well, but it still doesn’t seem right that the 1/2 year is given the same weight as the 3 full years.  Can somebody else chime in and give an opinion?

giants2010

It’s equivalent to
[ 1+(cumulative return) ] ^ (1/ (time in years) )
Note:  12/42 = 1/3.5
It’s ok to use the 1/2 year unweighted in computing the cumulative return, because you take care of the half-year when you are calcuating how many years have gone by in the exponent.  If you haven’t gone very far into the year, the YTD still contributes to the cumulative return, it’s just not usually a very big number.

transferpricing

Annualized return = Since Inception Return ^ (1/years since inception)