Implications of "Best Interest" Rule for Annuities
Aaron Levitt
|
With broker-dealers and agents now acting in favor of clients, investors may be...
Welcome to MutualFunds.com
Please help us personalize your experience and select the one that best describes you.
Your personalized experience is almost ready.
Thank you!
Check your email and confirm your subscription to complete your personalized experience.
Thank you for your submission
We hope you enjoy your experience
The most common type of performance benchmark is a market index that is a preselected group of securities. In the United States, the most common benchmarks for index funds are the S&P 500, Russell 2000, Barclays Capital US, and the Aggregate Bond Index. The performance of the fund against the benchmark is measured in a unit called beta. Essentially beta is how closely the fund matches the performance of the market, if a beta is 1.2 then investors can expect 20% higher returns in an up market, or vice versa, a 20% decline in a downward market.
Different investors seek different returns; investors that are seeking outperformance will typically be attracted to actively managed funds, while those seeking a more conservative return, will want to look at index funds.
If you’re not sure where to start when it comes to comparing funds, see our guide on How to Research Mutual Funds.
As a result, according to the S&P Indices Versus Active Funds Scorecard, between 1998 and 2013 only 25.6% of the active funds currently in existence outperformed their benchmarks. The funds that did outperform the index funds were typically large-cap growth funds that beat their Russell 1000 Growth Index. What is similar between the benchmarks for index mutual funds and actively managed mutual funds is that in either case a benchmark is used as a standard against which the performance of the mutual fund can be measured.
Learn more about What a Mutual Fund Manager Does.
Lastly, benchmarks can be anything and as such should only be used as one tool in assessing a mutual fund’s return. Furthermore, comparing to the wrong benchmark will distort a fund’s performance. One should look at the total return and the expense ratios along with the track record of the fund when making investment decisions as well.
With the S&P 500, the larger the company the greater its position in the index. Another thing to consider is that if a mutual fund is focused on small companies or on foreign stocks, it would be unfair to compare the returns of the fund to the S&P 500 and so there are benchmarks appropriate for those funds as well.
See also A Guide to the Different Types of Mutual Funds.
Some of the most common market benchmarks are:
That being said, if faced with two similar mutual funds that measure different benchmarks, investors should look at the historical total return of each fund, but also the MER to determine which fund to invest in. The benchmark, while important, is only there to give a snapshot of the performance of the fund and a representation of the market it is measuring.
Check out the Cheapest Mutual Funds for Every Investment Objective.
Receive email updates about best performers, news, CE accredited webcasts and more.
Aaron Levitt
|
With broker-dealers and agents now acting in favor of clients, investors may be...
Justin Kuepper
|
Let’s take a look at what sets China apart from other emerging markets,...
News
Iuri Struta
|
Check out the latest edition of mutual fund scorecard.
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Mutual Fund Education
Justin Kuepper
|
Let's take a closer look at how ESG investments have outperformed during the...
Mutual Fund Education
Daniel Cross
|
While CITs and mutual funds share many similarities, there are some key differences...
Mutual Fund Education
Sam Bourgi
|
The phrase ‘bear market’ has been thrown around a lot lately, but it...
The most common type of performance benchmark is a market index that is a preselected group of securities. In the United States, the most common benchmarks for index funds are the S&P 500, Russell 2000, Barclays Capital US, and the Aggregate Bond Index. The performance of the fund against the benchmark is measured in a unit called beta. Essentially beta is how closely the fund matches the performance of the market, if a beta is 1.2 then investors can expect 20% higher returns in an up market, or vice versa, a 20% decline in a downward market.
Different investors seek different returns; investors that are seeking outperformance will typically be attracted to actively managed funds, while those seeking a more conservative return, will want to look at index funds.
If you’re not sure where to start when it comes to comparing funds, see our guide on How to Research Mutual Funds.
As a result, according to the S&P Indices Versus Active Funds Scorecard, between 1998 and 2013 only 25.6% of the active funds currently in existence outperformed their benchmarks. The funds that did outperform the index funds were typically large-cap growth funds that beat their Russell 1000 Growth Index. What is similar between the benchmarks for index mutual funds and actively managed mutual funds is that in either case a benchmark is used as a standard against which the performance of the mutual fund can be measured.
Learn more about What a Mutual Fund Manager Does.
Lastly, benchmarks can be anything and as such should only be used as one tool in assessing a mutual fund’s return. Furthermore, comparing to the wrong benchmark will distort a fund’s performance. One should look at the total return and the expense ratios along with the track record of the fund when making investment decisions as well.
With the S&P 500, the larger the company the greater its position in the index. Another thing to consider is that if a mutual fund is focused on small companies or on foreign stocks, it would be unfair to compare the returns of the fund to the S&P 500 and so there are benchmarks appropriate for those funds as well.
See also A Guide to the Different Types of Mutual Funds.
Some of the most common market benchmarks are:
That being said, if faced with two similar mutual funds that measure different benchmarks, investors should look at the historical total return of each fund, but also the MER to determine which fund to invest in. The benchmark, while important, is only there to give a snapshot of the performance of the fund and a representation of the market it is measuring.
Check out the Cheapest Mutual Funds for Every Investment Objective.
Receive email updates about best performers, news, CE accredited webcasts and more.
Aaron Levitt
|
With broker-dealers and agents now acting in favor of clients, investors may be...
Justin Kuepper
|
Let’s take a look at what sets China apart from other emerging markets,...
News
Iuri Struta
|
Check out the latest edition of mutual fund scorecard.
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Mutual Fund Education
Justin Kuepper
|
Let's take a closer look at how ESG investments have outperformed during the...
Mutual Fund Education
Daniel Cross
|
While CITs and mutual funds share many similarities, there are some key differences...
Mutual Fund Education
Sam Bourgi
|
The phrase ‘bear market’ has been thrown around a lot lately, but it...