The time-weighted rate of return is the preferred measure for evaluating portfolio managers because it neutralizes the impact of cash inflows and outflows, which are typically outside the manager's control. This method ensures that the performance evaluation focuses solely on the manager's investment decisions rather than the client's timing of cash flows.

• Option B (Arithmetic mean rate of return) is incorrect because it tends to be biased upward and is not suitable for evaluating portfolios of publicly traded securities.

• Option C (Money-weighted rate of return) is also incorrect because it is influenced by the timing of client contributions and withdrawals, which can distort the manager's true performance. The time-weighted rate of return eliminates these distortions, providing a clearer assessment of the manager's skill.