Holding Period Return/Yield

Loading the player...

What is the 'Holding Period Return/Yield'

The total return received from holding an asset or portfolio of assets over a period of time, generally expressed as a percentage. Holding period return/yield is calculated on the basis of total returns from the asset or portfolio – i.e. income plus changes in value. It is particularly useful for comparing returns between investments held for different periods of time.

Holding Period Return (HPR) and annualized HPR for returns over multiple years can be calculated as follows:

Holding Period Return =

Income + (End of Period Value – Initial Value) / Initial Value

Annualized HPR =

{[(Income + (End of Period Value – Initial Value)] / Initial Value+ 1}1/t – 1

where t = number of years.

Returns for regular time periods such as quarters or years can be converted to a holding period return through the following formula:

(1 + HPR) = (1 + r1) x (1 + r2) x (1 + r3) x (1 + r4) where r1, r2, r3and r4are periodic returns.

Thus, HPR = [(1 + r1) x (1 + r2) x (1 + r3) x (1 + r4)] – 1

BREAKING DOWN 'Holding Period Return/Yield'

The following are some examples of calculating holding period return:

1. What is the HPR for an investor who bought a stock a year ago at $50 and received $5 in dividends over the year, if the stock is now trading at $60?

HPR = [5 + (60 – 50)] / 50 = 30%

2. Which investment performed better? Mutual Fund X that was held for three years, during which it appreciated from $100 to $150 and provided $5 in distributions, or Mutual Fund B that went from $200 to $320 and generated $10 in distributions over four years?

HPR for Fund X = [5 + (150 – 100)] / 100 = 55%

HPR for Fund B = [10 + (320 – 200)] / 200 = 65%

Note that Fund B had the higher HPR, but it was held for four years, as opposed to the three years for which Fund X was held. Since the time periods are different, this requires annualized HPR to be calculated, as shown below.

3. Calculation of annualized HPR:

Annualized HPR for Fund X = (0.55 + 1)1/3 – 1 = 15.73%

Annualized HPR for Fund B = (0.65 + 1)1/4 – 1 = 13.34%

Thus, despite having the lower HPR, Fund X was clearly the superior investment.

4. Your stock portfolio had the following returns in the four quarters of a given year: +8%, -5%, +6%, +4%. How did it compare against the benchmark index, which had total returns of 12% over the year?

HPR for your stock portfolio = [(1 + 0.08) x (1 – 0.05) x (1 + 0.06) x (1 + 0.04)] – 1 = 13.1%

Your portfolio therefore outperformed the index by more than a percentage point (however, the risk of the portfolio should also be compared to that of the index to evaluate if the added return was generated by taking significantly higher risk).

RELATED TERMS
  1. Ending Market Value (EMV)

    The value of an investment at the end of the investment period. ...
  2. Close Location Value - CLV

    A measure used in technical analysis to determine where the price ...
  3. Covered Interest Arbitrage

    The practice of using favorable interest rate differentials to ...
  4. Return

    The gain or loss of a security in a particular period. The return ...
  5. Withdrawal Plan

    1) A payment structure arranged with a mutual fund in which the ...
  6. Absolute Return

    The return that an asset achieves over a certain period of time. ...
Related Articles
  1. Investing Basics

    Calculating the Holding Period Return/Yield

    Holding period return/yield is the return on an investment or portfolio during the time it is held.
  2. Personal Finance

    Dissecting the Simple Interest Formula

    Simple interest ignores the effect of compounding: it's only calculated on the principal amount. This makes it easier to calculate than compound interest.
  3. Investing Basics

    Investing $100 a Month in Stocks for 20 Years

    Learn how a monthly investment of just $100 can help build a future nest egg using properly diversified stocks or stock mutual funds.
  4. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
  5. Investing Basics

    Calculating Annualized Total Return

    The annualized total return is the average return of an investment each year over a given time period.
  6. Investing Basics

    Breaking Down The Geometric Mean

    Understanding portfolio performance, whether for a self-managed, discretionary portfolio or a non-discretionary portfolio, is vital to determining whether the portfolio strategy is working or ...
  7. Professionals

    How To Measure Returns On The Series 65 Exam

    An investor who is evaluating the performance of a portfolio manager must take into consideration the impact that any contributions or withdrawals made by the investor will have on the overall ...
  8. Fundamental Analysis

    The Most Accurate Way To Gauge Returns: The Compound Annual Growth Rate

    The compound annual growth rate, or CAGR for short, represents one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios and anything that ...
  9. Investing Basics

    Learn Simple And Compound Interest

    Interest is defined as the cost of borrowing money, and depending on how it is calculated, can be classified as simple interest or compound interest.
  10. Investing Basics

    Understanding The Time Value Of Money

    Find out why time really is money by learning to calculate present and future value.
RELATED FAQS
  1. John purchased 100 shares of XYZ stock for $50 per share. He held the stock for ...

    The correct answer is b. The Holding Period Return (HPR) is the total return (income, dividends, plus capital appreciation ... Read Answer >>
  2. What is the difference between a company's annual return and its annualized return?

    Understand the importance of calculating a company's annual return and its annualized return, and learn the differences between ... Read Answer >>
  3. How do I calculate my portfolio's investment returns and performance?

    Learn the basic principles underlying the data and calculations used to perform personal rates of return on investment portfolios. Read Answer >>
  4. How can I calculate the expected return of my portfolio?

    Understand the components of the equation used to calculate the expected return of an investor's portfolio. Learn why the ... Read Answer >>
  5. Can hedge funds outperform the market?

    Learn about hedge funds and whether or not their investment style can help investors generate returns that exceed those of ... Read Answer >>
  6. What does it mean when someone says that a stock went up X points? Does this refer ...

    For stocks, one point equals one dollar. So when you hear that a stock has lost or gained X number of "points", this is the ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center