Why would TWR is considered a better measurement than MWR for evaluating the external advisor’s investment performance?
MWR - impacted by timing and size of cash flow
- Use when the manager have control over timing and amount of cash flow (e.g. the person can control when more capital should be added to an investment and when capital should be removed)
TWR - Not impacted by timing and and size of cash flow
- Use when manager have no control over timing or size of cash flow (e.g. the client is the one controlling whether more or less capital should be invested).
I see you posted several MWR and TWR questions. The easiest way to understand them is to do the actual calculations by working out some samples. Your understanding will be deeper versus trying to remember definitions.
The posts are presenting different questions, SWE made it a bit clearer because I did not get the part regarding the manager vs the client earlier.