Once you’ve decided that mutual funds are right for your investing needs, how do you make sure you’re choosing the right one for you? Looking at how a fund has performed is one of many important considerations when selecting investments. Develop a deeper understanding of mutual fund performance.
Understanding Mutual Fund Performance
The mutual fund industry adheres to strict standards when publishing or providing mutual fund portfolio performance data. This data follows common standards with the intent to make it fair and balanced when potential investors compare various options. If you’ve tried to look at fund performance data on a website or in a prospectus, then you know that “comprehensive” is a good word to describe the amount of information available. “Confusing” might be another word you’d use when trying to weed through all of the numbers, but if you know what to look for, you can quickly size up different funds and find one that’s right for you. Keep in mind that past performance is not indicative of future results, but seeing how a fund has performed over time may help provide some insight into how it historically has been managed.
Start with Goals and Risk
Before diving into fund performance, you should first have a clear sense of your financial goals and risk tolerance. Once you know what you’re saving for, when you’ll need the money, and how comfortable you are with different levels of fluctuation in your account values, you can more easily narrow your choices. Most funds will provide a statement of investment objective and the relative risk of the fund when compared to other funds. These two pieces of information may provide you with enough information to know if a fund is in line with your needs. Once you find a fund that seems to match your goals and risk tolerance, the next step is to take a deeper look at the fund performance.
Key Performance Indicators
Here are some of the typical values used to determine fund performance:
- Net Asset Value (NAV)
The NAV is the fund’s value or price per share. The NAV is calculated by dividing the total value of all the fund’s assets (minus its liabilities) by the number of shares issued. NAVs are only calculated once per day, after the market has closed.
- Daily NAV Change
Since mutual funds are only priced once a day, the daily NAV change is the difference between the fund’s most recent price per share and its price from the prior day. The daily NAV change can be shown as a dollars-and-cents change or a percentage change.
Mutual fund performance is usually presented as a total return. Total returns include both the fund’s change in value and the reinvestment of any dividends, capital gains, or interest payments.
- Average Annualized or Trailing Returns
Average annualized returns, also known as trailing returns, illustrate fund performance over a specific time period, usually looking backward from a recent month or quarter-end. The most common time periods include three months, year-to-date, 1 year, 3 year, 5 year, 10 year and Since Inception.
- Calendar Year Returns
Mutual funds will also often show calendar year returns which illustrate how a fund performed from January 1 to December 31 of that particular year. This allows you to see how the fund performed during specific historical time periods.
- Growth of a $10,000 Investment
Below is an example of a chart many mutual funds present to demonstrate how a $10,000 investment in that fund would’ve changed over time. These charts typically go back either ten years or back to the initial launch of the fund.
Mutual Fund Benchmarks
Listings of fund performance will usually include the fund’s benchmarks to provide a reference point for measurements. There are two common types of benchmarks:
- Index Benchmark
A benchmark like the Standard & Poor’s 500 Index or the Russell 2000 Index illustrates how a fund performed against large segments of market. Index benchmarks are most meaningful when the fund invests in the same types of securities as the index does. Be careful not to compare the performance of a bond fund with that of a stock index!
- Peer Group Benchmark
A benchmark based on similarly-structured funds enables a more “apples-to-apples” comparison of fund performance. A peer group benchmark may show the returns of the median fund in the peer group for each particular time period. Sometimes the fund will show its percentile ranking within the peer group, which tells you how many of its peers it outperformed. A search on the internet may lead you to several options of firms that provide peer benchmark data, or the mutual fund company itself may provide that in its fund data fact sheets.
What Thrivent Mutual Funds Offers
One important aspect of the Thrivent Mutual Funds active management approach is the care and thought that go into selecting indexes and peer groups to serve as benchmarks when comparing fund performance. We believe in delivering the most complete overview for each and every fund by selecting indexes that are similar in style with our funds (like large capitalization indexes to compare with a fund made up of primarily large capitalization securities) or peer groups focused on funds with similar investment objectives to our funds. Now, that’s something we can all understand. When you choose to invest with Thrivent Mutual Funds, you’ll benefit from the expertise of our investment professionals and the convenience and choices we provide to make investing easier.
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