What is CAGR, and how is the current month handled?
CAGR stands for Compound Annual Growth Rate. It answers a simple question: if a strategy grew at a perfectly steady rate every year, what would that annual rate be? It is the standard way to compare returns across strategies with different track record lengths, because raw cumulative return is misleading - a strategy with 20 years of history and a strategy with 3 years of history need a common yardstick.
The formula compounds the total return over the full period and then scales it to one year:
CAGR = (Ending Value / Starting Value) ^ (1 / Years) - 1
A strategy that turned $10,000 into $18,000 over 5 years has a CAGR of about 12.5%, regardless of how bumpy or smooth the ride was along the way.
How the current month is handled
The most recent month shown on the site is usually still in progress. Its allocation is published daily, but its return is not final until the month closes, and you will see it labeled accordingly.
When a date range ends in an in-progress month, DMS counts that month as a fraction of a month rather than a whole one, based on how many days have elapsed. This matters more than it might sound. On the third day of a month, only a sliver of that month's return exists. Annualizing it as though it represented a full month would badly distort the result - a small partial gain would be scaled up as if it had taken a month to earn, inflating CAGR, and a small partial loss would do the reverse.
The practical effect:
- Early in the month, the in-progress month contributes almost nothing to the CAGR figure.
- As the month fills in, it counts for progressively more.
- Once the month closes and its return is final, it counts as a full month like any other.
A consequence worth knowing: a CAGR quoted for a range ending in the current month is a moving number. It will shift day to day as the month accumulates, and it will settle once the month closes. That is the calculation working correctly, not a data problem.
The same fractional logic applies at the other end of the track record. If a strategy went live partway through a month, its first month is scaled to the portion of the month it was actually invested, so it is never credited with a full month of return it did not earn.
Why the number on your screen may differ from one you noted earlier
Three global toggles change the CAGR displayed:
- Inflation Adjusted Returns shows the real rate rather than the nominal one.
- Include Trading Friction accounts for the cost of executing the strategy's trades.
- Taxable Account applies tax drag to the return stream.
If a figure does not match what you recorded previously, check these first - the underlying data has not changed, only the lens.
What CAGR doesn't tell you
CAGR is a two-point measurement. It sees only where the strategy started and where it ended, and it is blind to everything in between. Two strategies can post an identical CAGR while one lost half its value and clawed back while the other barely dipped. The ride is invisible to this number.
For a fuller picture, pair it with Max Drawdown, Ulcer Index, and the Sortino ratio.