Average Annual Return - AAR

AAA

DEFINITION of 'Average Annual Return - AAR'

A percentage figure used when reporting the historical return, such as the three-, five- and 10-year average returns of a mutual fund. The average annual return is stated net of a fund's operating expense ratio, which does not include sales charges, if applicable, or portfolio transaction brokerage commissions.

INVESTOPEDIA EXPLAINS 'Average Annual Return - AAR'

When you are selecting a mutual fund, the average annual return is a helpful guide for measuring a fund's long-term performance. However, investors should also look at a fund's yearly performance to fully appreciate the consistency of its annual total returns. For example, a five-year average annual return of 10% looks attractive; however, if the yearly returns (those that produced the average annual return) were +40%, +30%, -10%, +5% and -15% (50 / 5 = 10%), the fund's recent performance (past three years) is absolutely awful.

RELATED TERMS
  1. Survivorship Bias Risk

    The possibility that an investor will make a misguided investment ...
  2. Unannualized

    A rate of return on an investment for a period other than one ...
  3. Annual Return

    The return an investment provides over a period of time, expressed ...
  4. Window Dressing

    A strategy used by mutual fund and portfolio managers near the ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. Survivorship Bias

    The tendency for mutual funds with poor performance to be dropped ...
Related Articles
  1. Options & Futures

    What average annual return does the forest products sector generate?

    Investing in the forestry sector provides investors access to an alternative asset class that provides both consistency and growth.
  2. Mutual Funds & ETFs

    Mutual Funds: Does Size Really Matter?

    The growth of mutual funds isn't always cause for celebration. Read on to find out why.
  3. Mutual Funds & ETFs

    Digging Deeper: The Mutual Fund Prospectus

    The legal jargon of this document can be daunting. Find out how to get to the important stuff.
  4. Mutual Funds & ETFs

    Published Mutual Fund Returns Not Always What They Appear

    Survivorship bias erases substandard performers, distorting overall mutual fund returns.
  5. Investing Basics

    What is the difference between a REIT and a real estate fund?

    A real estate fund invests in securities offered by public real estate properties directly or indirectly through Real Estate Investment Trusts (REITs).
  6. Mutual Funds & ETFs

    Can you invest in hedge funds?

    Read about what it takes to invest in a hedge fund, and learn how some investors find ways to indirectly capture a hedge fund's returns.
  7. Economics

    Gary Gordon Positions Your Portfolio For 2015

    Seeking Alpha, the popular financial web portal, interviews Gary Gordon for its Positioning for 2015 series. Here is a transcript of that exchange.
  8. Mutual Funds & ETFs

    What is standard deviation used for in mutual funds?

    See how standard deviation is helpful in evaluating a mutual fund's performance. Use it in combination with other measurements to find a good investment.
  9. Investing Basics

    What are typical trust fund management fees?

    Learn about trust fund management fees, such as the annual management fee, annual expense ratio, brokerage commissions and trading expenses.
  10. Fundamental Analysis

    Is alpha the best risk measure?

    Read about some of the strengths and weaknesses of alpha, a popular risk-adjusted performance indicator based on modern portfolio theory.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center