The Morningstar and Value Line reports provide comprehensive multi-year annualized total return data. The comparisons in the Morningstar and Value Line presentations express a fund's performance as above (+) or below (-) the peer, category, and/or index benchmark annualized total return figures.
For example, if the XYZ Fund has an annualized 10-year total return of 9.5%, and the S&P 500 Index had an equivalent total return of 8.2%, the comparison would be expressed as + 1.3% for the period. This figure indicates that XYZ's performance is above that of the S&P 500 Index by that percentage. Conversely, if the XYZ and S&P total returns were reversed, the comparison would be expressed as - 1.3%.
By looking at the fund's total return numbers in the performance overviews, particularly those in the five-year and 10-year periods, we can readily determine how a fund is performing compared to its relevant benchmarks. Look for managed funds to do better than their peers, category and index benchmarks; with index funds, try to match performance to a fund's tracking index. A positive performance differential between a fund and its benchmarks is a very favorable investment quality.
As was discussed previously in this chapter, it is prudent to cross-check the annualized total return figure against the fund's year-to-year figures. If XYZ Fund's 10-year annualized total return is 9.5%, the prudent fund investor will look at XYZ's past 10-year annual total returns to see if the annualized return is representative of its mean performance. Fairly steady, above-market tracking performance is indicative of fund investment quality.
Return to the Main Menu.
Proceed to the next chapter on Analytical Commentary on a Fund.
InvestingCheck in here for an overview of mutual fund investment quality and how to find it.
InvestingThe annualized total return is the average return of an investment each year over a given time period.
InvestingYear over year measures performance in one time period versus performance in a previous time period.
InvestingMutual fund ratings can help investors, but they have their drawbacks as well.