Instructions for dissecting mutual fund returns

On January 1, 2006, a principal monetary day detailed the following 1 year and 5 year returns of the Fidelity Contra fund (Nasdaq: FCNTX), a common asset with no heaps, at 16.23% and 6.21% individually. While day-to-day money return data is useful, there is something else to common asset returns.

Is asset presentation predominant or secondary?

How productive is the asset to transmit these benefits?

Do the benefits of the asset equal the danger that the supervisor of the asset took to accomplish them?

Smart funders will seek answers to these requests while evaluating the returns on common assets. Before getting to the basics of shared asset returns, it’s a good idea to get what the news in the daily money market really means.

All return

Constancy Contra’s 1 year return was 16.23%, or the full return on assets for the period December 31, 2004 to December 31, 2005. In terms of common sense, $ 10,000 invested in resources. The asset on December 31, 2004 is valued at $ 11,623 as of December 31, 2005. The full return incorporates more than the expansion (or decrease) in the cost of the asset portion. It expects reinvestment of all profits just as the addition of short and long term capital disperses into the asset at the price at which each release is made.

Annual compound return

The revealed return of 6.21% over 5 years is the annual compound return on the asset (also known as the normal annual return). The accumulated annual return is a fixed number that describes the rate at which the business has grown, accepting uniform development from year to year over the 5-year period.

An interest of $ 10,000 in the Contrafund on December 31, 2000 increased to $ 13,515.34 on December 31, 2005. The value consumed of $ 13,515.34 = $ 10,000[(1 + 0.0621)^5] where 6.21% is the annual compound return. Interest in the asset grew at an inferred annual growth rate of 6.21% over a 5-year period.

While absolute return and annual compound return are valuable, they don’t tell how a specific shared asset performed relative to its companions. They also do not give information on the return actually acquired by the donors after having represented the expenses. Finally, they don’t offer an understanding of how the CFO oversaw the risks while realizing the profits.

Relative efficiency

Relative performance compares the performance of a mutual fund to that of its peers. It is the difference between the total return of the fund and the total return of an appropriate benchmark over the same period.

Fidelity Contra is a large cap growth funds which invests primarily in companies based in the United States. It is therefore advisable to compare its performance with that of a medium large capitalization growth funds. It is also relevant to compare the fund to the Standard & Poor’s (S&P) 500 Index, made up of large companies based in the United States.

While Fidelity Contra has an annual compound return of 6.21% for the 5-year period ending December 31, 2005, Morningstar reports that the average large-cap growth fund has an average annual loss of 8.48% over the year. same period. The S&P 500 Index has an average annual return of 0.54% over the same period. Fidelity Contra outperformed with a relative return of 14.69% over the large cap average growth funds and with a relative return of 5.67% against the S&P 500 Index.

After tax return

Unlike resources held in qualified records, for example, 401k plans or individual retirement accounts (IRAs), resources held in customary individual or shared services are not licensed. For these unqualified cases, the post-government form is the recognized return following the presentation of charges.

Transitional capital gains and temporary capital increase allocations for a common good are now invoiced at the same rate as the remuneration acquired. Profits, long-term capital addition circulations and long-term capital increases recognized from the stock offering of assets are currently billed at a lower rate.

Loyalty expresses the annual compounded Fidelity Contra return before fees is 6.21% for the 5 year period ending December 31, 2005. At the time all dispersions are billed at the highest government personal duty rate imaginable , the amount after fees form plunges to 6.10%. The form after costs decreases further to 5.33% due to the representation of capital increase costs drawn due on special shares.

Risk-adjusted return

Some asset managers face more challenges than others. Evaluate an asset’s return by considering the measure of risk the asset manager takes to pass that return on.

The risk-adjusted return is generally estimated using the Sharpe ratio. The proportion is determined using the equation (return on common asset – risk-free return) / standard deviation of return on shared asset. The higher the Sharpe proportion, the better the return on the asset per unit of risk.

Based on earnings for the 3 year period ending November 30, 2005, Morningstar reports that Fidelity Contra’s Sharpe proportion is 1.74. The asset’s Sharpe ratio can be compared to those of comparative assets to decide how the asset’s danger has changed the performance contrasts and those of his friends.

Past mutual funds

Performance ideas such as relative return, post-government shape, and risk-modified return can also be used to value independently supervised accounts, mutual funds, and model risk portfolio portfolios.


While all returns and annual compound returns are valuable, they do not provide a complete picture of a shared asset’s exposure. Metrics such as the relative return and the post-valuation valuation form provide information about the asset’s relative exposure and serviceability. Risk-modified returns allow lenders to study how an asset’s benefits stack up when risk is factored in.

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