Included in the performance reports are a number of different metrics. Two of these are time weighted returns in the performance summary and chart and unrealized gains/losses in the appraisal report. Sometimes these numbers can be confused for each other and expected to be the same or at least similar, so we will discuss here why that is not the case.
Note, see our article here for a detailed breakdown of the time weighted return calculation.
Time weighted returns
Reflects change in value over a given time interval
Include effects of both realized and unrealized gains/losses (i.e. previously and currently owned securities)
Households include the performance of accounts that may have closed previously
Unrealized gains/losses
Reflects difference between the market value and cost basis of securities held on a specific day
Here is an example of why these values can vary differently.
On 6/30, an account owns 100 shares of Security A. Its cost basis is $5,000 and market value is $6,000. On 7/15, Security A is sold for $6,500.
The return for the account for the period 6/30 - 7/15 would be ($6,500/$6,000) - 1 = 8.3%.
The unrealized gain on 6/30 would be ($6,000/$5,000) = 20%, on 7/15 before the sale it would be ($6,500/$5,000) - 1 = 30%. After the sale, the unrealized gain would become 0%.
The time weighted return will reflect the change in value over a period of time but the unrealized gain/loss will only ever be a point in time statistic.