Weighted average return meaning

A composite rate of return for a portfolio or pool of assets, calculated by weighting each component’s return by its relative size (for example, market value or capital invested) over the measurement period. It is a descriptive finance term, not generally defined in legislation or case law in England & Wales, Scotland, Northern Ireland or Ireland, so the methodology should be stated expressly in contracts and reports. Key features include: the chosen weighting basis; the period covered; treatment of cash flows (subscriptions/redemptions), fees, expenses and leverage; currency; and whether results are shown gross or net. Because larger holdings drive the outcome, the figure is sensitive to portfolio composition. Typical legal uses include investment management agreements, pension scheme trustee reporting, fund offering documents and performance fee mechanics, portfolio sale due diligence and warranties, and expert evidence when aggregating investment losses. Practical significance: it underpins benchmark and covenant testing, remuneration triggers and disclosure accuracy. It differs from a simple average of returns and from time‑weighted return or internal rate of return (money‑weighted). Parties should specify if a value‑weighted average is intended and reference any applicable presentation standards (for example, GIPS) to avoid disputes. Usage is broadly consistent across the UK and Ireland.