What is the Value Added Monthly Index?

A value added monthly index (VAMI) tracks the monthly performance of a hypothetical $1000 investment, assuming reinvestment, over a period of time.

Key Takeaways

  • A value added monthly index (VAMI) tracks the monthly performance of a hypothetical $1000 investment, assuming reinvestment, over a period of time.
  • VAMI is one of the most commonly used metrics to depict a fund's overall performance to investors.
  • VAMI is calculated using NET monthly returns.

Understanding Value Added Monthly Index (VAMI)

A value added monthly index charts the total return gained by an investor over a specified period of time. It includes capital gains as well as reinvestment of any disbursements, such as dividends and additional interest earned through compounding. Another key aspect of VAMI is that it is calculated using NET monthly returns. This means that any applicable fees, such as management, incentive, brokerage fees, have already been deducted and what's left is the real return.

This is one of the most commonly used metrics to depict a fund's overall performance to investors. VAMI's popularity stems from the fact that it is quite descriptive, in that it shows an investor how $1,000 has performed over a given period, and that it is easy to understand.

A value added monthly index can be used for a variety of purposes. It may provide insight on the growth of invested capital over time. Sometimes, it can be used to evaluate the performance of a fund manager. It is also helpful in comparing multiple funds and index benchmarks. VAMI is calculated by multiplying the previous month's VAMI by the current month's NET return.

  1. VAMI first point = 1000 * (1 + current month's NET return)
  2. Subsequent VAMI = Previous VAMI x (1 + current month's NET return)

Using VAMI for Comparison

VAMI charts can be a reliable way to compare the growth of various funds and benchmarks across the market. Investors can customize these charts to choose from the options in a fund company’s family of funds. VAMI charts provide investors with a perspective on how an investment has performed over time. They may also provide insight on potential expectations with future projections. VAMI charts can also provide a visual representation of how similar funds, or funds from different asset class categories, have performed over a specified time-frame, with benchmark returns also included for broader analysis.

VAMI Tools

Numerous market platforms provide VAMI tools for investor analysis. These tools can allow for varying inputs such as higher initial capital values and varying durations.

A value added monthly index can be constructed using technical software programming. It typically begins with a hypothetical investment of $1,000. However, initial investment levels can vary. When using this modeling technique it is important to ensure the availability and quality of data to provide relevant charting, as estimated outcomes can be skewed by data quality. VAMI charts can be built in Microsoft Excel or other technical software programs. Online versions are often provided by financial services companies to help provide a graphical representation of investment values over time.

Morningstar provides an example with its VAMI tool, which is part of its research offering for mutual funds. Under the chart tab, investors are provided with the hypothetical growth of an initial $10,000 investment. When researching the Vanguard 500 Index Fund for the one-year period from January 26, 2017 to January 26, 2018, the VAMI chart shows that an investor’s $10,000 investment would have increased to $12,585.