Glossary : Personal Fund

What Is the Amount Invested?

Or the amount you are thinking of investing. Or just stick with our $10,000 default — it makes the numbers easy to read and compare.

What Type of Account Is Your Money In?

Your money is either in a regular, taxable account or else some kind of tax-sheltered retirement account — an IRA, Roth IRA or a Keogh Plan or a 401(k) or 403(b) at work.

Tell us which.

We need to know, because some mutual funds are far more “tax efficient” than others. By trading infrequently, and/or favoring low-dividend stocks, they expose you to less tax. This doesn’t matter in a tax-sheltered account, so our Calculator ignores it. But in a regular, taxable account, it matters a lot.

What Is Your Marginal Income Tax Rate?

In a tax-sheltered retirement account, this doesn’t matter. Enter any number you want or leave ours. We ignore it. But if you are investing with regular, taxable money, then we need a sensible estimate here.

Of course, tax rates and your situation may change in the future, so don’t stress out trying to get the exact right figure. Just enter something that seems like the right ballpark. (And if you’re in a low bracket today, because you’re just starting out, consider entering a higher number. Over the life of this investment, your income and tax bracket might well increase.)

Basically, the question is: “If you got an extra $1,000 in income, how much of it would you have to pay in federal and state income taxes?” If you’d owe $350, then you’re in the 35% marginal tax bracket.

If you’re in the 27% federal bracket and live in a state with no income tax, you’d enter 27%. If you earn tons of money and are in the top 38.6% bracket plus you live in a state with a 10% top tax bracket (but it’s deductible, so it works out to more like 6% after the value of the deduction), you might enter 45%.

If you don’t know your federal tax bracket, see this page for a little help. It’s based on your taxable income — after reducing it for IRA contributions, the standard or itemized deductions, personal exemptions and the like. The federal ordinary income tax rates apply to income from bonds and most bond funds, and to mutual fund short-term capital gain distributions. Dividends from stocks and most stock funds are taxed at the same federal rate as long-term capital gains.

For specific information on your own state’s tax rates and tax treatment of dividends and capital gains, check with your state’s tax agency.

Your Tax Rate for Dividends and Long-Term Gains?

Again, ignore this if your money’s in a tax-sheltered account. Otherwise, you’d typically enter around 20% — the 15% federal rate plus something for your state tax, if you live in a state that taxes capital gains. If you presently qualify for the 5% capital-gains rate that applies to those in the 10-15% federal tax brackets, you might consider entering the 20% rate anyway. Why? Because over the years, your income may increase. Then again, if you expect Congress to cut the capital gains tax, you might enter a somewhat lower rate. (Then again again, if you’re subject to the Alternative Minimum Tax and your income falls within the band in which the exemption phases out, you might enter a somewhat higher rate.) But don’t worry about being precise! Just enter something that seems sensible to you, or accept our default.

How Long Do You Expect to Hold the Fund?

Enter any number of years. We use a 30-year default because it shows very dramatically how costs cut into your long-term success. Note, too, that once you buy shares in a fund, you may find yourself keeping them a very long time. There’s inertia, for one thing. There’s the odd fondness some folks develop for their fund, as if it were a friend. There’s the initial load, in some cases, that, having once paid it, you can never get back. And — mainly (and the only one of these that is actually logical and compelling) — there is the large tax bite you would suffer if you took your heretofore unrealized profits off the table.

Expected Annual Return?

Who knows.

Feel free to change the estimate we’ve chosen for this fund. It is very rough, based on the long-term historical data for funds of this general type. Note that it is an estimate of the future annual gross return on the underlying assets in the fund before taking into account any investment expenses. Here are the default estimates for different kinds of funds (updated April 2020).

Type of Fund	Projected Return
U.S. Stock Funds	10%
Global Stock Funds	8%
International Stock Funds, High-Yield Bond Funds, Aggressive Mixed-Asset Funds	7%
Long-term Corporate Bond Funds, Moderate Mixed-Asset Funds	6%
Long-term Government Bond Funds, Long-term Municipal Bond Funds	5%
Global and International Bond Funds, Intermediate Government and Municipal Bond Funds	4%
Short-term Bond Funds, Commodities Funds	3%
Money Market Funds	2%

You may plug in your own assumptions and test different scenarios. What you’ll find out is that, no matter what assumptions you make, high costs drag down performance. And that within a given class of fund — no matter how that class ultimately fares — the funds with high costs are at a tremendous disadvantage. Like horses with fat jockeys — or fast planes flying into stiff headwinds.

Least Expensive Comparable Funds

These are no-load funds of the same fund category as the fund you’ve chosen to analyze. The classification into investment objectives is determined by Lipper, our data provider, and should be used only as a rough guide in comparing funds. We search the database for no-load funds with the lowest last-year’s cost of ownership, given the tax rate you specified. (If you said this was tax-sheltered money, then tax considerations are ignored.)

We do not guarantee that these are unfailingly the lowest cost funds. But among funds with at least one year of history in the database, they generally are. Also, we exclude most funds that are designated “Advisor” or “Institutional” class and are not normally available to retail customers. We do not specifically recommend any of these funds, nor does the exclusion of any fund from this list imply in any way that we recommend against the fund. We list these funds only to illustrate that a variety of low cost funds are available in the marketplace.

IMPORTANT NOTE: Some funds appear to have very low expenses and get chosen for our comparison here because they “waive” all or a portion of their fees temporarily. That makes them look good in the short-term, but obviously doesn’t help much in the long-term. Also, some will charge tiny service fees on very small accounts – but on a very small account, even tiny fees can have an impact. So please use the funds we show only as a starting point for further research. And remember that the goal of this site is not to find you the right fund, but to show you the importance of costs in making a good decision – or perhaps even, one day, in deciding to build your own “personal fund”.

Last Year’s Cost of Ownership

This is the total of all the fund’s ongoing annual costs, both those we know for sure and those we estimate. (Scroll down to the next table to see what comprises this total.) We show it both in actual dollars — cash that came out of your investment pocket — and as a percent of your investment.

The formula is: Management Fees + Distribution Fee + Transaction Costs + Taxes

(See below for the formulas we use to calculate each of these cost components)

Our calculations are based on the latest 12-month Lipper data. You know the standard line — “past performance does not guarantee future results.” Well, that’s very true of performance. A fund that was up 30% one year could be down 30% next year. But costs are somewhat more predictable. A high-cost fund this year is not at all likely to be a low-cost fund next year.

(High as they may seem in some cases, these numbers do not include any initial “load” you may have paid when you bought the fund, nor any surrender fee you might have to pay to sell it early. If the fund does have a load or surrender fee, we note it in our discussion above the table and explain its additional impact.)

Projected Value of Fund

This shows how much your fund will be worth after subtracting from performance our estimated costs. Namely, the management fee and any 12b-1 fee, the transaction costs and taxes.

The formula is: A((1 + R – i)*E)ⁿ where:

A = initial investment amount
R = the expected annual return on the investment, before deducting any costs
i = investment expense, the sum of Expense Ratio and estimated Transaction Costs
E = tax efficiency, based on last years actual tax efficiency, defined as
(1 + After_Tax_Return)/(1 + Pre_Tax_Return)
n = Number of years you expect to hold the investment

This projection, like any attempt to project into the future, may be very far off the mark. The fund might do much better or worse than you expected. Management fees could be raised or lowered. The tax law may change. (When has it ever not?) But in terms of comparing the difference that costs make within a class of similar mutual funds, and as a way to illustrate the dramatic impact costs have on your future net worth, this projection remains a powerful tool.

The area with the greatest uncertainty, is taxes. (This is not a concern if the fund is held in a tax-sheltered account) We base the future tax bite on this past year’s tax bite. Often, that provides sensible results. But not always. For example, if this is a fund that had a terrible year and made no capital gains distribution, we would consider it highly “tax efficient” — when in fact it was just highly unprofitable. So we would grossly under-project the tax bite if it paid out big gains in the future. Before plunging into a fund with significant turnover that appears to be tax efficient, check the fund’s stated policy on taxable distributions and check to see what sort of tax liabilities it generated for its shareholders during good years.

Note: The purchasing power of your investment is likely to be even lower than the “projected value” that we show, because of inflation, and because — except for funds held in a Roth IRA — there will be taxes to pay as you liquidate your investment.

In the case of a retirement account, you’ll pay ordinary income tax on the withdrawals. In the case of a taxable account, you’ll have capital gains tax to pay on the undistributed appreciation of your shares.

Last Year’s Actual Returns

In the left-hand column is the fund’s Pre-Tax return for the past 12 months (through the last day of the most recent calendar month), and assuming all dividend and capital gains distributions are reinvested (see below for details on how this is calculated). But what’s important to you, if you own shares in a regular, taxable account, is the return you’d have enjoyed after paying tax on the distributed dividends and capital gains. So it’s the right-hand, After-Tax column to really look at. If you’ve told us you are in the zero tax bracket, or that you hold this fund in a tax-sheltered account — or if the fund made no taxable distributions — the two numbers will be the same.

With municipal bond funds, we assume no tax is due on the dividend distributions — only on the capital gains distributions. (In fact, you may owe some state income tax unless the fund buys only bonds issued in your state.)

With regard to the capital gains distributions, the data we receive do no report the breakdown between short- and long-term gains. We make the conservative (cautious) assumption that all distributed capital gains are long-term. Since long-term gains incur lower taxes than short-term gains, the actual taxes paid by the fund owner may be higher than the estimate that we report. Generally speaking, funds with high turnover may be more likely to distribute a larger proportion of their gains as short-term.

Management Fees: Advisory, Administrative and Uncategorized Expenses

These are the management fees that reduced the value of your fund shares. It covers the fund’s costs of portfolio management, administration and shareholder service. In some cases, marketing and distribution expenses are also included in these numbers.

We itemize the fees as reported by our data vendor, Refinitiv Lipper: Advisory and Administration.

The Advisory fee reported here is the sum of what Refinitiv Lipper simply calls “Advisory Expense Ratio” and the “Subadvisory Expense Ratio”, where the former is defined as “The portion of a fund’s total expense ratio that is paid to the fund’s advisor”, and the latter is defined as “The portion of a fund’s total expense ratio that is paid to the fund’s sub-advisor usually by the advisor for services performed on behalf of the advisor.” Most funds report an Advisory Expense Ratio, but do not report a Subadvisory Expense. The Administration fee is defined by Refinitiv Lipper as “The portion of a fund’s total expense paid to the fund’s administrator”.

Uncategorized fees are additional fund management fees that you pay but aren’t explicitly attributed to either of the latter categories. The fee breakdown isn’t necessarily precise. Some funds don’t report a value for one component or another, and in some cases the fee component is reported as negative, indicating a discount to be applied against other fees. The important number which has the most direct impact on your investment is the net sum of all fees paid. How the fund manager allocates this total among the different fee components as more a matter of its own internal accounting. Unless we have a positive number for a given fee component we report it here is “n.a.” or “not reported”. What we show here is the total expense that you pay, and allocated proportionally among the fee components that are reported in our database as positive numbers.

Since the Expense Ratio (and each fee component thereof) as reported by the fund is based on average value, not on initial value, we also estimate average value for the last 12 months as follows:

Average Asset Factor = 1 + Pre_Tax_Return / 2

So the number we report for the dollar amount for fund management is :

Amount Invested * Fee Component * Average Asset Factor

and the percentage amount is: Fee Component * Average Asset Factor

The “Total fund management fees you paid” is simply the sum of the 3 components, it may not appear to add up exactly, due to rounding.

The percentage values may differ slightly from the expense ratio numbers in the “Basic Fund Profile” table, since the values here take into account appreciation (or depreciation) of the fund value over the past year.

Amount You Paid for Fund Distribution

This is the 12b-1 fee that reduced the value of your fund shares. This is defined by Refinitiv Lipper as “Historical amount of distribution-related and/or shareholder servicing expenses paid by a fund over its latest fiscal year, which was paid pursuant to the fund’s 12b-1 distribution plan”.

As above, we take the reported 12b-1 fee and multiply it by the Average Asset Factor to estimate the actual amount you would have paid for distribution.

Note that many fund families compensate their distribution partners with money that comes out of their management fee. This is not explicitly reported as a 12b-1 fee. Why should you care? Only because you might have hoped that money was used to support a team of brilliant research analysts and portfolio managers — not going to pay to sell you the fund.

Your Share of the Fund’s Transaction Costs

This is our estimate of your share of the fund’s trading costs. Brokerage commissions, yes — but that’s only part of it.

The formula is: TurnoverCost * Turnover * Amounted Invested

Say you went to an art gallery and asked the value of a famous lithograph. The gallery would give you one price if you were looking to buy it, another if you already owned it and were looking to sell. With art, the spread between “bid and ask” can be enormous. With 10,000 shares of a stock, it will be much smaller — but meaningful nonetheless.

And there’s another aspect to this. If you or I want to buy or sell 500 shares of a stock, it rarely “moves the market.” What we add to the supply (if we’re selling) or demand (if we’re buying) is so slight, the price barely moves, if at all. But what if, like a mutual fund, we were trying to buy or sell 200,000 shares — let alone in a hurry? We might sell the first 5,000 shares at 50, but have to accept as little as 49 or 48, on average, to move them all. Buying, we might find that our demand for these shares had bid their price up to 51 or 52 by the time we had gotten them all.

Mutual fund managers are generally sensitive to this, of course, and attempt to trade cheaply and wisely. But Dr. Mark Carhart analyzed this issue in great detail in his 1997 Journal of Finance article “On Persistence in Mutual Fund Performance”. He found that, on average, a fund with 100% annual turnover gives up nearly 1% in transaction costs — 0.95% to be precise. A fund with 25% turnover would give up only a quarter as much. A fund with 300% turnover — three times as much. And so on.

Our own newer study on funds from a more recent time period, found different transaction costs for different categories of funds. The costs per category are summarized in a table here.

So that’s the formula we use in our calculation.

Taxes You Paid for Holding the Fund

This is our estimate of the tax you’d have incurred by holding shares of the fund. (Zero, if you hold it in a tax-sheltered account.) Even if you have your distributions automatically reinvested, the tax must be paid.

We apply your ordinary income tax rate to dividend distributions and the short-term portion of any capital gains distributions that were made. We apply your long-term capital gains tax rate to the long-term portion. Because most funds do not publicly report the long/short breakdown of their capital gains distributions, we make the simplifying assumption that 70% of all such distributions are long-term.

Note that we do not calculate taxes on the dividends paid by municipal bond funds, however we do calculate taxes on their capital gains distributions.

Projected Potential Value

If there were absolutely no costs — like a world without friction — this is what your investment would be worth if the fund’s underlying investments compounded at the rate we’re assuming for the number of years you entered.

The formula is: Initial_Investment*(1 + Expected_Annual_Return)^{Holding_Period}

Of course, no real investment can achieve this projected potential value, as any investment will incur some costs.

Potential Value Lost to Costs

This is our estimate of the potential wealth lost to costs and taxes over the time period you specified. We assume that all dividends and capital gains are reinvested, net of taxes.

In a nutshell, it’s the difference between the “Projected Potential Value” and the “Projected Actual Value”

Percentage of Potential Appreciation Lost to Costs

How much of your partner are costs and taxes?

The formula is:
(Projected Potential Value – Projected Actual Value) / (Proj. Potential Value – Starting Amount)

Someone who buys and holds 100 shares of stock that appreciate at, say, 12% a year, gives up zero percent of the potential appreciation until he eventually sells it. Someone who buys a mutual fund whose underlying investments grow at the same 12%, on average, but that racks up fees and transaction costs and taxes by actively trading stocks, may find that over the long run he may be only a 50/50 partner in his own success. How much of the gain on your money are you willing to give up?

Index Fund?

Will either be:

Not an index fund, an actively managed fund.
Pure Index Fund, a fund whose objective is to match the total investment performance of a publicly recognized securities market index. A fund designated as “pure index” is passively managed and invests a majority of its assets in virtually all the securities of the targeted index, rebalancing regularly to mimic the proportions of the index. The performance of such a fund is likely to track its index very closely.
Index Based Fund, a fund that utilizes any index (widely recognized or branded) as its primary filter for selecting securities in which to invest. Index-based funds may invest in non publicly recognized indices, multiple indices, derivatives and a portion or all of the fund may be passively or actively managed.
Enhanced Index Fund, a fund whose objective is to exceed the total investment performance of a publicly recognized securities market index. Enhanced index funds are actively managed and invest the majority of their assets in the components of a targeted index. These funds may also invest in derivative securities based on the index or Treasuries and may weight their holdings in different proportions than the targeted index.

Lipper Fund Category

This describes the type of assets that the fund owns. The categories are determined by Lipper, our data provider. A complete list of the various Lipper categories is here.

Front-End Load

This is a sales commission you would pay in order to purchase shares of the fund. Studies repeatedly confirm that load funds, on average, perform no better than no-load funds. A higher profit to the dealer does nothing to improve the product. In some cases, the load decreases, depending on how much you invest in the fund. The reported number is the maximum load for this fund.

Back-End Load

This is a sales commission you would pay when selling your shares of the fund. In many cases, the back-end load decreases depending on how long you’ve owned the fund. The reported number is the maximum back-end load for this fund. Be sure to read the fund’s prospectus carefully to understand its policies on back-end loads (which are sometimes called surrender charges or contingent-deferred sales charges).

Total Expense Ratio

This is the number most people think of when they think of mutual fund expenses, but it is only part of the story. It includes both the Management Fee paid to the company that manages the portfolio, as well as any “12b-1 fee” for marketing the fund. The average shareholder in a U.S. domestic stock fund gives up about 1% a year to these expenses. That may sound low, but over a lifetime every 1 percent makes a huge difference. For example, if you put away $2,000 a year for 50 years at 8%, you’d have nearly $1.25 million at the end. Not bad. But if you could do just 1% better, you’d have better than half a million dollars more.

The specific numbers in the itemized list are the expense ratio component drawn directly from the Refinitiv Lipper database, defined therein as follows:

Administrative Expense: “The portion of a fund’s total expense paid to the fund’s administrator”.
Advisory Expense: “The portion of a fund’s total expense ratio that is paid to the fund’s advisor”.
Sub-advisory Expense: “The portion of a fund’s total expense ratio that is paid to the fund’s sub-advisor usually by the advisor for services performed on behalf of the advisor”.
12b-1 Fee: “Historical amount of distribution-related and/or shareholder servicing expenses paid by a fund over its latest fiscal year, which was paid pursuant to the fund’s 12b-1 distribution plan”.This is a fee some funds charge to help cover their sales and distribution costs — for example, annual payments to the brokerage firm that sold you the fund. Frequently, brokers who advertise “no-transaction-fee” funds collect 12b-1 fees from your account. Indeed, over time, a long-term investor may end up paying far more in 12b-1 fees than if he had just paid a sales commission (“load”) up front. Of course, in terms of costs, you’re better off paying neither.These expenses come out of existing shareholder pockets in order to enrich management in its pursuit of new money for the fund.

The “Total Expense Ratio” is the ratio of deducted expenses to portfolio value as reported in the fund’s current fiscal year prospectus.

“Uncategorized Management Expenses” is the difference between Total Expense Ratio and the sum of the itemized expenses above.

Any of the itemized expenses, or Uncategorized Expenses may be zero, unreported or negative. A negative value should be interpreted as a discount, credit, or rebate against the other expenses and will be denoted in the table as a value in (parentheses) and the word “rebate”.

Gross Prospectus Expense Ratio

Funds may report a ‘Gross’ expense ratio in its prospectus, along with the ‘Net’ expense ratio, which are the unaudited estimates of expenses for the current fiscal year. The ‘Gross’ ratio is the expense ratio before any discounts to the expense ratio, such as subsidies, reimbursements or waivers. The ‘Net’ ratio is the expense ratio after any subsidies or fee waivers are taken into account. The ‘Net’ number is what we report as Total Expense Ratio. When a fund reports a Gross number which is larger than the Net number, it suggests that the expense ratio might rise significantly in future years.

Funds may indicate (and we report) whether any fee waiver is in effect indefinitely, or for a particular period of time, and whether the fee waiver is contractual or voluntary.

Fund Turnover

A fund that never bought or sold anything would have zero turnover. A fund whose investment style were to move in and out of the market, constantly dumping one stock for another, could have turnover, in the course of the year, of 200% or 300% or 400%. Typically, because investment styles don’t change all that much, a fund that had high turnover last year — the number we show here — is likely to have high turnover in future years as well.

Turnover is important because it can expose you to taxes (in a tax-sheltered account, this wouldn’t matter). And because any time a fund buys or sells something, it incurs transaction costs — brokerage commissions and “spreads” — that eat into the value of your investment. That’s right: these costs are extra, not included in the management fee, and not broken out separately in the reports funds issue to their shareholders.

Of course, if the trades your fund manager makes are consistently brilliant, then the Net Asset Value of your fund will skyrocket even after these costs. But in the real world, that’s rarely how it works. Most mutual funds, over the long run, do worse than the market averages. And the drag of transaction costs are one of the reasons why.

Turnover Percentile

This number provides a ranking for the fund’s turnover relative to its peers. For example, 73% percentile means that 73% of similar funds have a higher turnover than the chosen fund. The higher the percentile number, the lower the turnover, and the greater the likelihood that the fund will do well relative to its peers. Studies have shown that funds in the top 90% outperform funds in the bottom 10%, on average, by a considerable margin.

Turnover Cost

This number indicates the fund’s estimated transaction costs per 100% of turnover, based on the type of assets that the fund owns. Funds generally do not publicize their internal trading costs and the best anyone can do is to make reasonable estimates based on statistical studies. Please click here for a paper that discusses our proprietary research on fund transaction costs, as well other research studies on the topic.

Type of Fund	Factor
Large-Cap U.S. Stock Funds	-0.41%
Small and Mid-Cap U.S. Stock Funds	-0.53%
International Stock Funds	-0.87%
Bond Funds	0%
Alternative Asset Funds	0%

The above table is for actively managed funds. The Factor is 0% for all Pure Index Funds.

For other types of funds not listed above, we make reasonable assumptions to estimate their costs based on their similarity to, or combination of, closely related major asset classes listed above.

Fiscal Year End

This is the last day of the 12-month period the fund uses to report its performance, and for which the Total Expense Ratio, 12b-1 Fee and Turnover apply. By the time the fund reports these results and they reach the public — typically a 120-day cycle — the fund may have raised its fees or increased turnover. Thus, the public doesn’t have the most timely information on which to make decisions.

Funds do make unaudited semi-annual reports to the SEC, but the Lipper database does not incorporate that information. For the most timely information you can download fund reports directly from the SEC website at http://www.sec.gov/cgi-bin/srch-edgar

At the SEC site, the funds’s Annual and Semi-Annual reports are in forms labeled N-30D. The prospectus, which contains more detail than the prospectus that the fund company normally distributes to the public, is in form 485BPOS

NAV — Net Asset Value

If a fund owns $20 million in securities and is divided into 1 million shares, the Net Asset Value of each share is $20. We show here the NAV as of the end of the most recent calendar month for which we have data (“Recent NAV”) — as well as the year prior’s NAV (“Year-ago NAV”). To see today’s price, you can use any of dozens of free on-line services. But in terms of getting a sense of, and comparing, a fund’s costs of ownership, it’s not important that prices be up to the minute. The “Year-ago NAV” is adjusted for any splits that might have occurred during the 12 months prior to the end of the most recent calendar month, so as to be commensurate with the “Recent NAV”.

Note: When a fund makes a dividend or capital gains distribution to its shareholders, its NAV instantly drops by the same amount. (It had $20 million in assets, distributes $2 million, and so now has $18 million. You get your $2-a-share distribution — and see the NAV of your shares drop from $20 to $18. You had $20 before and still have $20. Nothing has happened, except that you may now owe some taxes.) A fund whose NAV seems stuck at $10 forever may not be a dog after all — if it’s been making large distributions.

Dividend Distributions

This is the amount of dividends and interest that the fund earned on its investments and then passed on to its shareholders — per share — during the twelve months up to and including the end of the most recent calendar month. Even if you choose to have these distributions automatically reinvested in the fund, you will owe tax on them if you hold the fund in a taxable account. Dividends included in this sum are respectively adjusted for any splits that occurred after the distribution, so as to be commensurate with the “Recent NAV” and “Year-ago” NAVs above.

Capital Gains Distributions

When a fund makes more profits than losses from its trades in a given year, it must pay out the excess — the net profit — in the form of a “capital gains distribution.” (Sometimes it will make distributions more than once a year.) Even if you choose to have these distributions automatically reinvested in the fund, you will owe tax on them if you hold the fund in a taxable account. Short-term gains are taxed as ordinary income. Long-term capital gains are taxed at a lower rate. The statement you get from the fund will tell you how the distribution breaks down between each.

The number we show here is the total in capital gains distributions the fund paid out, per share, during the twelve months up to and including the end of the most recent calendar month. Capital gains distributions included in this sum are respectively adjusted for any splits that occurred after the distribution, so as to be commensurate with the “Recent NAV” and “Year-ago” NAVs above.

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Pre-Tax Total Return (Distributions Reinvested)

This is the fund’s performance over the most recent twelve months (up to the end of the most recent calendar month) — net of all investment costs but before any taxes you might have had to pay — and assuming that dividend and capital gains distributions are immediately reinvested in the fund, which is a common practice and conveniently implemented by brokers where the funds are held. It is the sum of the cash it paid out to shareholders, plus appreciation in the value of the fund’s shares.

The formula is: (NAV_end / NAV_start ) * (1 + [Cap.Gains₁ + Dividends₁] / NAV₁) * (1 + [Cap.Gains₂ + Dividends₂] / NAV₂) * … * (1 + [Cap.Gains_n + Dividends_n] / NAV_n) – 1

Where Cap.Gains_i and Dividends_i are the distributions paid out on some day during the period and reinvested when the fund price was NAV_i. For example, consider the following sequence of distributions and NAVs:

Date	NAV	Cap Gain Distribution (per share)	Dividend Distribution (per share)
Dec. 31, 2019	$10.00
Mar. 15, 2020	$10.50		$0.16
Sep. 20, 2020	$10.60	$0.10	$0.20
Dec. 31, 2020	$10.50

The annual return for 2020 is then: (10.50/10.00)*(1+0.16/10.50)*(1+0.30/10.60) – 1 = 9.617%

The formula for after-tax returns with reinvested distributions is similar, except that we assume that any taxes due on a distribution are paid out of that distribution at the time the distribution is reinvested and reduces the amount reinvested accordingly.

Pre-Tax Total Return (Distributions Not Reinvested)

This is the fund’s performance over the most recent twelve months (up to the end of the most recent calendar month) — net of all investment costs but before any taxes you might have had to pay — and assuming that dividend and capital gains distributions are not reinvested. It is the sum of the cash it paid out to shareholders, plus appreciation in the value of the fund’s shares.

The formula is: (NAV_end – NAV_start + Cap.Gains + Dividends) / NAV_start

So if the fund’s Net Asset Value was $10 per share at the start of the period and $11 at the end — and it paid out $1.50 in cash along the way — then we would show its Pre-Tax Total Return as 25%. Namely, 15% from the $1.50 in cash that it paid you, plus 10% from the gain in the Net Asset Value of your shares.

(Unless either there were no distributions during the period, or all of the distributions were made on the last day of the period, this return will be different from the return when distributions are reinvested, see above.)

Return from Dividend Distributions

This is the percentage of fund assets paid out as dividends.

The formula is: Dividends / NAV_start

If the Net Asset Value of the fund’s shares was $10 at the start of the most recent four quarters for which we have data, and the fund paid out $1 a share in dividend distributions during those four quarters, then the number we show here would be 10%.

Return from Realized Capital Gains

This is the percentage of fund assets paid out as capital gains.

The formula is: Cap.Gains / NAV_start

If the Net Asset Value of the fund’s shares was $10 at the start of the most recent four quarters for which we have data, and the fund paid out $1 a share in capital-gains distributions during those four quarters, then the number we show here would be 10%.

Capital Appreciation

This shows how much the fund’s shares have appreciated over the most recent four quarters for which we have data.

The formula is: (NAV_end – NAV_start) / NAV_start

If the share price was $10 at the start of the period and $10.50 at the end, we would show capital appreciation of 5%. The funds total return is the sum of Capital Appreciation and Returns from Dividends and Realized Capital Gains.

Fund Inception Date

This is the date when the fund began managing money.

Total Net Assets

This is the total amount of assets invested in the fund’s underlying portfolio*. This is the best measure of how big the fund is. The size is relevant to costs, since the transaction costs for larger funds are likely to be higher than for smaller funds. Why? Because the larger the fund, the larger the blocks of stocks or bonds it must buy or sell at any given time. When a large bidder needs to buy or sell it can have a greater impact on the market price, then when a small player places a trade.

*In this context, the portfolio is the set of all of the fund manager’s funds of all share classes which invest in the same underlying pool of assets. For example, the Touchstone Balanced Fund, comes in 3 different versions, Class A, Class C and Class Y, with different ticker symbols and different expense ratios and front- or back-end loads. But they invest in a common pool of assets. The three funds together make up a single portfolio.

Growth in Total Net Assets

A fund’s growth in assets typically comes from two places: appreciation of the securities it owns, and the inflow of new money from new and existing shareholders. If the number we show here is negative, it may be the combination of negative fund performance, and redemptions by shareholders.

This is significant to costs because if the fund is generating net inflows (growing by taking in new money), it is paying extra transaction costs to buy more securities. These transaction costs are not reported in the “total expense ratio” and not reflected in our other calculations, so be aware that a fast growing fund may be more expensive to own than a relatively stable fund.

Similarly, if a fund is shrinking because other shareholders are redeeming their shares, the fund incurs additional transaction costs to sell its securities, and the remaining shareholders end up paying for these costs. These transaction costs are not reported in the “total expense ratio” and not reflected in our other calculations, so be aware that a shrinking fund may be more expensive to own than a relatively stable fund.

How can you tell if your fund is growing or shrinking? Compare this number (Growth in Total Net Assets) with the fund’s Pre-Tax Total Return. If total assets have grown 4%, say, when the fund’s pre-tax return was 8%, that tells you the fund has experienced net redemptions — more old money being withdrawn than new money flowing in. (Otherwise, the fund’s assets would have grown at least 8%.) If the fund’s investment return was 8% but its total assets grew at 16%, it is experiencing net inflows.

Close Benchmark Index

The name of the market index in our database that is the closest match to the given fund.

We show three statistics to measure how closely the fund matches the index, computed over the previous 48 months, or life of fund if shorter.

- Correlation: the standard (Pearson) correlation coefficient between the index’s and the fund’s monthly returns, expressed as a percentage (100% maximum). Index funds normally have a correlation of over 99% with the index they are designed to track, and in many cases it will round up to 100.0%. Actively managed funds typically have correlations above 90% with indexes that match the specific type of assets that the fund invests in. If the index shown for a given fund has a correlation of less than 99% for an index fund or less than 90% for an active fund, the most likely explanation is that the fund has a unique and specialized investment approach that is not closely matched by any of the indexes in our database.

- Tracking Error: the standard deviation of the differences in monthly returns between the fund and the index. Always a positive number, reported in basis points (1/100ths of a percent, abbreviated bps). The smaller the number, the more closely the fund has adhered to the index. Typical index funds have a tracking error of less than 50bps, or even less than 10bps, relative to the index they are designed to track. A typical actively managed fund is likely to have a tracking error of 100bps or more.

Mean Monthly Difference: The average of the differences in monthly returns between the fund and the index. This value is also expressed in basis points. A positive (negative) number indicates that the fund has outperformed (underperformed) the index during the applicable period. The typical index fund will show a negative value in the low single digits, indicating that it underperforms the index it is designed to track each month by approximately the monthly pro-rated share of its annual expense ratio. Actively managed funds are more variable in their mean monthly differences, and most active funds show a negative value in this field.

The displayed index for each fund is the index in our database which has the lowest tracking error of any index for the given fund. For most index funds we identify the exact index which the fund is designed to track. In some cases there are multiple indexes which cover the same portion of the market and are nearly identical for the purposes of most individual investors. For example, the S&P 500, Russell 1000 and CRSP Large Cap US indexes all track the stocks of large US companies, and are highly correlated with one another. There isn’t necessarily a strong reason for a fund vendor to design the fund around one of these vs. another, other than for the brand name and the licensing fees and other business arrangements with the index provider. There isn’t necessarily a compelling reason for an individual investor who wants a US large-cap index fund to prefer a fund tracking one of these indexes vs. another, other than the difference in expense ratio.

When indexes are so close to one another both conceptually and numerically, it sometimes occurs that a fund designed to track one index may realize a slightly lower tracking error relative to a different, but similar index. In nearly all cases of index funds, however, we will correctly identify either the exact index which the fund tracks or a very close substitute, unless there is no suitable index in our database of over 4,600 indexes covering US and international financial markets.

Last updated on June 29, 2021