Can you help me understand the difference between YTD IRR and 1-Year IRR?

tim.rohrer1

I have a security I purchased in July 2020; dividends are not reinvested.

Today, Quicken reports the Average Annual Return IRR (%) YTD of this security as 5.9% while the Average Annual Return IRR (%) 1-Year is 0.4%.

While I realize we have two more weeks until the YTD and the 1-Year periods match up exactly, I'm having a hard time believing these two numbers should be this different, especially since no dividends were posted during the last two weeks of 2020.

How are these numbers so different? What is the correct interpretation of "Average Annual Return IRR (%) 1-Year"?

Bigger picture, I can't say as I understand "Average Annual" for YTD or 1-Year, which makes me think the labels themselves are not clear.

Jim_Harman

In general the Average Annual Return or IRR is the interest rate a savings account with daily compounding would have to earn to match the performance of the security, given the same cash flows. It is an annualized number, so for periods of less than 1 year, the gains or losses may be larger than you would expect. The 1-year value would cover 12/14/20 through 12/13/21 and the YTD would cover 1/1/21 through 12/13/21. [corrected]

If dividends are not reinvested, they are considered part of the Return, i.e. the money you got back from the investment.

If the share price rose by about 5.9 - 0.4 or 5.5% between 12/14 and 12/31 of last year, that would account for the change you are seeing. If you can share the name of the security, we can look into this further.

[Added] Note that the S&P 500 rose by about 3% over the same period, so that change is very possible.

tim.rohrer1

Our understanding of the periods defined by 1-year and YTD appear to match each other.

The security in question is ATLO. Dividends are paid quarterly with the most recent in mid November, so the arguments for calculating IRR in the 1-year and YTD cases *should* be nearly identical. The closing price at 12/14/2020 was $25.23 whereas the closing price on 12/31/2020 was $24.02, so the price decreased. This would seem to support a higher YTD IRR as the value started lower. I believe your thesis has merit; I'm just not sure that is enough to account for a delta of 5.5%.

I am aware that average IRR calculations can be very sensitive to even small price changes, but I understood that to be more true when the holding period of the security was shorter than the period used for calculating the average. That is not the case in this situation.

At the close of market today, the YTD IRR % calculation is now 5.8% and the one year has bumped up to 0.5%. And the delta is 5.3%, so I'll keep watching this over the next few days.

Thanks for the conversation. If they don't match on 12/31, I'll definitely be back :smiley:

Jim_Harman

I did a quick check of ATLO using Excel's XIRR function and it agrees with what you report for Quicken's numbers.

XIRR test	ATLO	YTD
	shares	price	value
12/31/2020	100	24.02	2402
1/29/2021			-25
4/29/2021			-26
7/29/2021			-26
10/29/2021			-26
12/14/2021	100		-2430	5.858%

XIRR test	ATLO	12 mo.
	shares	price	value
12/14/2020	100	25.23	2523
1/29/2021			-25
4/29/2021			-26
7/29/2021			-26
10/29/2021			-26
12/14/2021	100		-2430	0.405%

[added]
This assumes you had 100 shares, but that doesn't really matter, the percentages are the same regardless of the number of shares you hold.

Actually for the 12 month calculation, we should be using use the 12/13/20 closing price as the starting point. The 25 and 26 numbers are the dividends you received in cash.