What a Fund's Investor Returns Are Trying to Tell You
Here are some tips for understanding this new way of looking at fund returns.
Back in October, Morningstar began calculating investor returns for all the mutual funds in our database, alongside the more familiar total returns. What's the difference? A fund's total return tells you how much its portfolio increased or decreased in value over a given period, but its investor return takes inflows and outflows into account to approximate the returns earned by a typical investor. Total return assumes a buy-and-hold strategy, whereas investor return recognizes that investors often buy high and sell low.
To really make sense of investor returns, we need to look at what they mean, especially in relation to a fund's total returns. There's a significant correlation between investor returns and fund volatility, and the difference between investor and total returns can give you clues about how well a fund shop treats its shareholders.
Investor Return Basics
Investor returns, also known as asset-weighted returns, put greater emphasis on periods when a fund is receiving a lot of inflows and its asset base is large, and less emphasis on periods when its asset base is smaller. An overview of our methodology can be found in the fact sheet, and even more details in the nine-page methodology document. (These are PDF files that require Adobe Acrobat.) For a more accessible overview of what investor returns are all about, see Christine Benz's column from when we unveiled them this past November.
David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.