Which weighted return allows investors to compare the performance of two investment advisors (IAs)?

The time-weighted return is the appropriate measure for comparing the performance of two investment advisors because it accounts for the effects of cash flows into and out of the investment over time. This method eliminates the impact of the timing of those cash flows, allowing investors to assess how well each advisor has performed regardless of the amount or timing of additional investments or withdrawals.

Using time-weighted returns means that if one advisor has a significantly different cash flow pattern than another, it won’t distort the performance comparison. Instead, it isolates the performance of the investment strategy itself, making it easier to evaluate the advisors solely based on their investment decisions and management skills.

While other types of returns, such as dollar-weighted, annualized, or gross returns, have their applications, they do not offer the same clarity in performance comparison between advisors because of factors like the timing of cash flows or the inclusion of fees which can misrepresent true investment performance relative to the advisors' management capabilities.