By Yann Kostic from the November 2014 Edition
You’ve probably noticed that your mutual fund account statement shows two sets of figures for average annual total returns: one is adjusted and the other, unadjusted. What does this mean?
Unadjusted performance figures: Unadjusted performance figures show the performance of a fund during the time periods indicated, taking into account changes in share value, and assuming reinvestment of all income and capital gain distributions. They do not adjust for sales charges.
Adjusted performance figures: Adjusted performance figures use the same calculation as for unadjusted figures, but also factor in the effects of the maximum sales charge that can be applied to a certain share class. This might include the front-end sales charge, or a contingent deferred sales charge that applies when shares are redeemed within the first year of investment.
Which figure should you use? The Securities and Exchange Commission (SEC) mandates that mutual funds show both figures to allow investors a fair and accurate comparison between funds, or between a fund and a market index. But many shareholders wonder which number they should use to assess the performance of their individual investment.
The truth is that because both unadjusted and adjusted performance figures are standardized, you may find that neither precisely reflects your own investment experience. For example, front-end sales charges are sometimes reduced, so a figure adjusted for the maximum sales charge wouldn’t apply to you, nor would a figure that was totally unadjusted for sales charges.
Other relevant factors: Additionally, a number of other factors, not just performance, are relevant when you’re deciding whether to hold or sell a mutual fund. A fund that doesn’t have a high current return, for example, may still play an important role in your portfolio as a diversifier. If you are trying to decide, your best option is to seek advice from your advisor, who understands your individual financial circumstances and goals.
Yann Kostic is a Financial Advisor (RIA) and Money Manager with Atlantis Wealth Management, specializing in retirees (or soon to be), self-reliant women and Expats in Mexico. Due to a transition to an international custodian, and as early as next month, firm client’s will be allowed to hold multiple currencies in a single account, including US and Canadian dollars and Mexican pesos. Yann splits his time between Florida and Lake Chapala/Manzanillo. Comments, questions or to request his Newsletter “News You Can Use”. Contact him at Yannk@AtlantisWealth.com, in Mexico: (376) 106-1613 or in the US: (321) 574-1529
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