Annualised Return

larry09

Hi,

I have been researching information on funds recently, and I have come across the the term Annualised Return, in regards to a fund managers performance.

For example, on a website it stated that a fund managers annualised return over 11 years was 11%.

What exactly does this mean? Does it mean that if I had invested money in this fund, then, on average I would of seen my money grow 11% each year?

Or am I off the mark with this one guys? Any help/info would be much appreciated!

Reaper

Yes, it translates growth into an annual figure. If the period is less than a year then it tells you what the growth would be if it continued at that rate for the rest of the year.

If the period is more than a year then it tells you what the equivilent annual growth per year was.

xrjtg

It means that if the fund had grown 11% every year for the 11 years then the return would have been the same as it was. Note that this isn't the same as the arithmetic mean of the percentage growth figures for each of the 11 years (it's a much more useful figure).

larry09

just for confirmation, are you are saying that the annualised return figure is the most useful?


cheers.

xrjtg

Yes, the annualised return figure is more useful. If the fund rises 50% one year, then falls 30% the next, the annualised return is between 2 and 3%, which gives a more accurate picture than adding 50% to -30% and dividing by 2 to get 10%, a figure that doesn't really mean anything.