What factor does the time-weighted rate of return accurately reflect?

The time-weighted rate of return is a measure specifically designed to reflect an investment's performance over time by eliminating the impact of cash flows into or out of the investment. This approach is particularly effective in assessing the true performance of an investment portfolio because it calculates returns based solely on the price movements of the investment, independent of any external factors like additional deposits or withdrawals made during the investment period.

When cash flows occur, they can skew performance metrics like the dollar-weighted return, which takes into account the timing and amount of these cash flows. In contrast, the time-weighted return looks at how well the investment itself has performed, as if all deposits and withdrawals occurred at the beginning of the measuring period. This feature makes it an ideal metric for evaluating the performance of a portfolio manager who does not control how and when investors choose to add or remove capital.

Thus, the correct answer reflects how the time-weighted rate of return accurately measures performance when funds are viewed as if they were placed in the account at the start of the evaluated period, ensuring that the evaluation captures growth or decline without cash flow distortions.