5 ways to measure fund performance: turning numbers into understanding
1. Long-term compound annual returns ;
2. Comparison with peers ;
3.performance relative to a relevant benchmark index ;
4. Bear market performance;
5. Year-by-year returns
This will allow you to evaluate the fund’s volatility, absolute and relative performance, riskiness and the manager’s consistency from a number of perspectives. Several non-industry websites such as fundlibrary.com, globefund.com and morningstar.ca provide a wealth of fund metrics including annual returns and compound returns compared to peers and indexes as well as risk measures such as standard deviation, maximum Drawdown and Sharpe ratio. And they’re free. Note that published fund returns always assume distributions are 100 % reinvested and that no tax is paid on distributions. They also ignore any sales commissions or wrap fees. Compound returns are not asset- weighted; this can give false reading on how the average fund investor’s actual performance experience.
