If I have an average monthly return on capital of 5%
If you have monthly data, then it might be better not to use your average return at all, but your compounded return based on those months. The average, being an average, will be pulled up in good months, so you may have one good month which brings the whole average up.
As an example, if you have three months of data with returns of 5%, 1%, and -3%, your average return is 1%. But the compounded return is 0.95%. 0.95% is a clearer indicator of how well the investments performed.
is it more common to use that number for performance or use the annualized value
More commonly I have seen the annualized number, because that is how things are typically reported -- you don't speak of quarterly returns when measuring the total value of an investment. But even then, you would compound it -- it would not be a straight multiple. Continuing the above example, the compounded annual return would be 11.98%, vs. the average monthly return multiplied by 12, which yields 12.00%. In this example, a 0.02% variance isn't a lot, but if you have large numbers offsetting your average, it can be a material difference.