Total Return And Footnotes
Jul 21, 2011
in Total Return
Total return is a concept that is surprisingly misunderstood. We get emails asking why does our moving average not match Yahoo or Tradestation?
Most Internet data sources and brokerage software platforms don't track total return -- yet total return is how all index returns are stated. In 2010, the SPDR S&P 500 index fund (SPY) was not +12.8%, it was up 15.1%. Vanguards investment grade bond fund (VCIT) was not +5.1% in 2010, it was +10.0% (and had some nice tactical swings throughout the year). The difference was distributions (which come in 2 forms: dividends and capital gains distributions).
One common thing we see is for various people to compare their performance to the price-only +12.8% and then footnote it saying 'dividends excluded'? To us, this is just as bad as mutual funds that claim the expense ratio is 1.2% and then footnote it saying you will be charged a 3% redemption fee if you sell the fund in first 5 years. There are no hidden fees with ETFs -- no sales loads, no purchase or redemption fees, no 12-b-1 fees. The 'A-class' 'B-class' 'C-Class' 'H-Class' 'I-class' mutual fund system is non-sensical in the ETF world --- there is only a single class of an ETF.
Here is another one: the Vanguard 60-40 stock-bond balanced fund returned +20.1% for the 10 years ended June 30th, 2011 
 excludes dividends
Well, a large part of owning a bond in the first place is the coupon. As it turns out, that index fund (VBINX) was +59.7% INCLUDING dividends. So it is entirely disingenuous to compare to a number that is one-third of the actual index return.
While this is all obvious to some -- it is clearly still not understood by many.
We created a free Comparison Tool to make it easy to view this concept as we feel the only REAL way to truly understand something fully is to interact with it through an application -- rather than just read about in a paper or on a blog.
Try a few out. Be aware that even if its not a large dividend payer, any capital gains distribution will also affect the return.
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