What is the difference between trailing and rolling returns? Which one should be considered while choosing a fund?
Trailing returns are dependent on two price points. So, a three-year trailing return means the annualised difference between the NAV (net asset value) today and the NAV three years ago. Rolling returns, on the other hand, are average annualised returns taken for a specified period on any chosen frequency like daily/weekly/monthly and till the last day of the chosen duration. For example, going back one or two years, every day you calculate three-year returns over the last two years and then average it.
Trailing return is dependent on being lucky. It simply is the return that you have invested in one day and taken out the money out another day. But if you invest on any of the days in a year and hold it for one year or three years, as in the example above, which is the probability of getting that return, is reflected in a rolling return after averaging the returns for the given period. So, the rolling return is more robust as it's a superior reflection of that likelihood. But remember, past performance is not a guarantee of future performance.