NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/misc/invest/16944

Internet Message Format | 1993-01-24 | 2.7 KB

Path: sparky!uunet!stanford.edu!ames!elroy.jpl.nasa.gov!news.aero.org!shag
From: [e-mail] (Robert M. Unverzagt)
Newsgroups: misc.invest
Subject: Re: REQUEST: Rate of return in a mutual fund
Date: 23 Jan 1993 20:28:55 GMT
Organization: Organization?  You must be kidding.
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In article <[e-mail]> [e-mail] (Peter Klug) writes:
>
> Could someone explain how to calculate the rate of return on a mutual
> fund investment?
>
> I know how to calculate the rate of return for a simple stock purchase
> and subsequent sale.  It's pretty straightforward since there is only
> a single amount and a single time frame to deal with.
>
> However, in a mutual fund or even if you split your stock purchase
> into a couple of sales at different times, all of a sudden the
> solution is not obvious to me.  So far all I've been able to come up
> with is to calculate a weighted average.  Can anyone clarify this?
> Thank you.
>
Each purchase can be treated separately and a rate of return
can be calculated for each, but I assume that you're asking
for a way to lump all these separate rates of return together
into one "figure of merit."  Here's how I do it, using a
spreadsheet to make it easy.

First, you need to adjust past NAV's by the amount of any
distributions paid since your purchase of them.  For example,
if the NAV when you bought some shares was $15.00, and the
fund has paid a dividend of $1.50/share since then, the adjusted
NAV for those shares is $13.50.  Do this for all shares.

Next, take the natural log of these adjusted NAVs (I'll call
them aNAVs).  Fit a line through these points, plotting
log(aNAV) vs date.  Most spreadsheets have linear regression
tools to do this.  You'll end up with a line with some slope --
hopefully positive :-).  The slope of that line is
your overall rate of return.  You'll probably have to play
with the scaling of that return rate -- the regression may
give it to you in %/day or something.

That will give you a total rate of return.  If you figure out
the rate of return on the raw NAV alone and compare it to the
total rate of return, you get the "yield" of the fund.

This assumes several things -- like the rate of return isn't
too large (would that I had such problems) so that the
exponential approximation for annual rate of return holds.
Anybody see any problems with this?

Shag


--
       Rob Unverzagt        |   Last call for alcohol.
  [e-mail]   |   Last call for freedom of speech.
[e-mail] |                            - Jello Biafra