1. Historical Performance Vs. Underlying Portfolio Characteristics
  2. Mutual Fund Performance Data
  3. Fund I-Q No.7: Comparative Total Returns
  4. Scoring Fund Performance Data

By Richard Loth (Contact | Biography)

This is the entry we need to complete in the Fund Investment-Quality Scorecard for an analysis of a mutual fund's performance data:

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.

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