Methods of measuring and evaluating performance

Mutual Fund
http://www.investopedia.com/walkthrough/fund-guide/mutual-funds-etfs/mf/mutual-fund-
performance.aspx

1.Total Return
A mutual fund's performance is always expressed in terms of its total return, which is the sum of
the change in a fund's net asset value (NAV), its dividends and its capital gains distributions over a
given period of time.

2.Market Conditions
A fund's true performance potential needs to be evaluated within the context of the market
environment prevailing during the different periods used. If, in 2006, we look back at total returns
for one year (2005), three years (2003 to 2005), five years (2001 to 2005) and 10 years (1996 to
2005), we are going to get a variety of percentages.

For example, as of March 2006, using a three-year measurement picks up one excellent year (2003)
and two fairly good years (2004 and 2005), all of which produce an overly positive take on a fund's
total return. A five-year measurement picks up two very poor years (2001 and 2002) and the
aforementioned good years (2003-05), making it more representative in terms of fund
performance.

Obviously, 10-year measurements of performance will most likely cover a mix of market conditions
and translate into a more reliable long-term indicator of a fund's investment management abilities.

3.Annualized Versus Actual Total Return
For any time period of more than one year, a fund's total return is "annualized" and so reported.

While helpful as a general indicator of fund performance, the prudent fund investor will also want
to look at the fund's year-to-year, or inter-annual, actual total returns. There is more investment
quality reflected in a fairly steady yearly performance rather than one with drastic ups and downs.
If we use an amusement park analogy for gauging the investment quality of a fund's performance, a
smooth ride on a merry-go-round would be preferable to the thrills of a ride on a roller coaster.
4.New Funds and Managers Without a Track Record
Unless there are some compelling special circumstances, simply avoid funds with fewer than three
years of performance. New managers need time to prove themselves. There are dozens of good
funds with long-term track records and managers that have proved themselves. With some
exceptions, when it comes to your hard-earned dollars, invest with reliable veterans rather than
with the new kids on the block.

5.The Performance Disclaimer
In the investment business, the oft repeated statement that "performance data represents past
performance, which is no guarantee of future results" has become a clich. Of course, the real
purpose of this statement is to provide liability protection to purveyors of investment products as
opposed to providing guidance to investors. That said, past performance is what we have to work
with - and it's much better than a crystal ball. The real problem here is the phrase, "no guarantee,"
which should alert investors to the simple fact that future investment performance is subject to
many variables.

6.Benchmarks
Benchmarking is one of the most important aspects of a mutual fund's total return performance. A
fund's performance metrics only have meaning if they are compared to appropriate "guideposts,"
or benchmarks. In the financial field, there are dozens of indexes against which analysts measure
the performance of any given investment.
Examples of well-known and much used market indexes include:
Standard & Poor's 500 Index: Includes 500, mostly large U.S. companies representing a
range of industries and sectors of the U.S. economy. The S&P 500 is commonly used as an
overall stock market benchmark as well as that for large cap stock mutual funds.
DJ Wilshire 5000 Index: Includes more than 6,700 U.S. companies of all sizes and is
considered the broadest measurement of the U.S. equity market. The Wilshire 5000 is used
as a benchmark for the American stock market and all cap stock mutual funds.
Russell 2000 Index: This index measures the performance of the 2,000 smallest stocks in the
U.S. market and is used as a benchmark for small cap stock mutual funds.
Morgan Stanley Capital International EAFE Index: The broadest international stock
benchmark, the MSCI EAFE measures the performance of stocks in Europe, Australia and the
Far East. There are additional MSCI indexes for other regions, specific countries and foreign
market segments.
Lehman Brothers Aggregate Bond Index: This index is considered the best overall
benchmark for the U.S. bond market.

7.Peer Comparisons
In addition to formalized benchmarks, mutual funds are also compared to their peers, or peer
groups, and relevant fund categories. For example, it is common for investment research materials
to compare a mid-cap value stock fund to funds similar in nature (peers or peer group) as well as an
index that is used for the mid cap value stock category as a whole.


Hedge Fund
http://www.hedgeco.net/hedgeducation/hedge-fund-articles/how-is-a-hedge-funds-
performance-measured/
Sharpe Ratio Measures return/risk. Return is the numerator and is defined as the incremental average return of an
investment over the risk free rate. Rate is the denominator and is defined as the standard deviation of the investment
returns.
Sortino Ratio Measures return/risk. Return is the numerator and is defined as the incremental compound average
period return over a Minimum Acceptable Return (MAR). Risk is the denominator and is defined as the Downside
Deviation below a Minimum Acceptable Return (MAR).
Sterling Ratio Average Annual Return / Maximum Drawdown
Beta A measure of the hedge funds volatility, or systematic risk, compared to the market as a whole. A beta of 1
indicates the fund will move with the market. A beta of more than 1 means that the fund is more volatile than the
market. A beta of less than 1 means the state of the market does not have as much impact on the fund.
Skewness Describes a hedge funds asymmetry in relation to a normal distribution.
Kurtosis Describes trends in charts. A high kurtosis means the chart has fat tails and a low, even distribution. A
low kurtosis means the chart has skinny tails and a distribution concentrated toward the mean.
Covariance measures the degree in which asset returns move in correlation to each other. A positive covariance
means that asset returns move together, while a negative covariance means that asset returns move in the opposite
direction of each other.
Standard Deviation used to measure the funds volatility. Also known as the historical volatility.
Treynor Ratio a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the
difference being that the Treynor ratio uses beta as the measurement of volatility.
Calmar Ratio A ratio used to determine return relative to drawdown risk in a hedge fund. Usually, the higher the
ratio, the better.
R Also called the linear correlation coefficient, r measures the strength and director of a linear relationship
between two variables.
R2 A statistical measure that represents the percentage of a fund or securitys movements that can be explained by
movements in a benchmark index.
Alpha Represents the value that the Portfolio Managers either adds to or subtracts from the fund. A positive alpha
of 1% means the fund has outperformed its benchmark index by 1%. A negative alpha indicates an
underperformance of 1%.
Compound Annual Growth Rate (CAGR) The year over year growth rate of the hedge fund. The CAGR is not
the actual return, but rather a number that portrays what the fund would have grown at if it grew at a steady rate.
Loss Deviation standard deviation of a down month
Growth of 1000 tracks the monthly performance of a hypothetical $1000 investment.
Downside Deviation measures left tail risk, but gives an acceptable threshold of return.
Maximum Drawdown The % decrease in investment value from its peak to its trough. It is the largest drawdown
that has ever occurred within a specific time frame.
Fund Cumulative Returns vs. Benchmark Comparing the hedge funds cumulative return with a standard in the
industry.
Rolling Performance performance of the fund for the past 12 months

Growth Fund

http://www.finra.org/Investors/SmartInvesting/AdvancedInvesting/EvaluatingPerformance

Capital Gains and Losses
Investments are also known as capital assets. If you make money by selling one of your capital assets for a
higher price than you paid to buy it, you have a capital gain. In contrast, if you lose money on the sale, you
have a capital loss. Capital gains and losses may be a major factor in your portfolio performance, especially if
you are an active investor who buys and sells frequently.

Using Benchmarks
Generally, when people refer to the stock market's performance, they're actually referring to the performance of
an index or average that tracks representative stocks or bonds. The index serves as an indicator of the overall
direction of the market as a whole, or of particular market segments. Investors use these indexes and averages
as benchmarks, to see how particular investments or combinations of investments measure up.

Reading Your Statements
Keeping track of your investments is important, but you might wonder how often you should check on them.
Some investors look at their portfolio values daily or weekly, and if you own extremely volatile investments and
have a short-term investment strategy, that can be a good idea.

However, if your strategy is long-term, it's important not to get overly concerned with short-term fluctuations in
value, since trading based on short-term volatility could sidetrack your long-term goals and cost you money in
taxes and transaction fees. Instead, you may want to check performance monthly or quarterly on the
statements you receive from your investment accounts.

It's important to read your statements before you file them away, both because you need to know how you're
doing in relation to your goals and because you need to see whether your statement is accurate, with all your
trades accounted for and recorded correctly.



Unit Trust

http://www.moneysense.gov.sg/understanding-financial-products/investments/types-of-
investments/unit-trusts.aspx

Evaluating fund performance
There are three main ways of evaluating the performance of your fund:
1.Total Returns
These take into account both the income received and price changes.
Information on total returns is available from the fund manager or from the IMAS /
LIA FundSingapore.com website.
Returns are annualised so you can examine performance from year to year, or over a number of
years, and compare performance of one fund with another.
Check if returns are provided net of fees and charges.
2.Compare funds performance against its benchmark index
Funds performance can also be measured against a benchmark index. For example, funds
investing in Singapore stocks often benchmark against the Straits Times Index.
A fund is said to have outperformed its benchmark index if the return is higher than benchmark.
Conversely, if the return is lower than the benchmark index, the fund has underperformed.
An actively-managed fund is generally expected, over a reasonable time horizon, to outperform
its benchmark index.
For passive or index funds, you can compare the funds performance against its benchmark index
to see how closely the fund replicates the indexs returns.
3.Performance relative to risk taken
The Sharpe ratio measures a funds historical risk-adjusted performance.
Generally, the higher the Sharpe ratio, the higher the excess return the manager was able to
generate per unit of risk taken. In other words, when comparing two funds that are benchmarked
against an index, the fund with the higher Sharpe ratio gives more returns for the same level of
risk.


Exchange Traded Fund
http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/exchange-traded-
funds/Pages/How-to-monitor-ETF-performance.aspx

Compare it to other ETFs

Compare it to its benchmark
Most passive ETFs track a specific benchmark. However, the ETF might deviate from the index
occasionally, especially when demand for an ETF drives its share prices up or down. This is
called tracking error and it can put an ETF temporarily out of synch with the index it tracks. You
can also use a benchmark that tracks a similar set of investments (for example, the S&P 500
Index) to monitor the performance of active ETFs. Fees and expenses paid by the ETF reduce its
returns the ETF returns will not exactly match the returns of the benchmark.
Add up the fees
Fees and commissions reduce your ETFs returns.
Disclosure documents
These documents contain information that can help you to assess an ETF. Securities regulators
require ETFs to file documents such as:

ETF summary document

the prospectus

periodic portfolio disclosure for example, the top 25 portfolio holdings on a quarterly
basis and full portfolio listing on a semi-annual and annual basis.

management reports of fund performance

Review account statements
Review your account statements to see how your investments are doing and keep track of the
costs youre paying. Then compare the performance of your investment portfolio against your
goals and the guidelines set out in your investment policy statement, if you have one.

Consult your advisor
If you have an advisor, ask them to explain why the price of your ETFs have suddenly fallen or
risen and what that means for your portfolio.
Follow stock market news
Are we in a bear market? A bull market? Is the market up or down in general? The value of the
ETF will be affected by any factors that affect the price of the stocks, bonds or other assets
making up that ETF.
General economic news
Read the business sections of major newspapers to find out what's happening in the economy.
Are interest rates going up? What's the inflation rate? How is the Canadian dollar doing against
other currencies?