Annual Returns

capital0ne

Morningstar shows performance figures for example Annual Returns

Annual Returns % (GBP) 28/02/2019
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Price 24.14 24.68 2.12 16.56 24.14 4.41 6.06 9.33 12.56 -8.48 8.24
NAV 23.16 16.53 3.19 16.20 26.06 5.11 5.76 9.51 12.86 -10.12 10.06
Cat Price† - - - - - - - - - -10.20 5.96
Cat NAV† 34.29 19.49 -2.30 17.30 30.61 3.66 8.60 8.39 10.86 -1.96 8.58
Benchmark‡ 30.12 14.51 -3.46 12.30 20.81 1.18 0.98 16.75 13.10 -9.47 6.57

And Annual Returns% is defined as:
Annual returns %
The performance of a fund over calendar year periods.

My questions are:
1. Does this include dividend reinvestment? I don't think it does.
Where can I find a total return
2. Can you calculate annualised returns from these figures using the usual maths?

Annualised return:
Refers to the conversion of the return on an investment into a yearly rate. For example, if Fund A returned 5% over six months and Fund B returned 4% over four months, Fund A´s annualised return is 10,25% and Fund B´s is 12,49%.

The overview page shows total returns
Total Returns (GBP) 31/03/2019 for 10y
Price 13.19%

Same questions apply

Total Returns
The absolute return of the fund, expressed as a percentage.
TIA

Prism

Morningstar includes dividend reinvestment in its returns. It also gives 1, 3, 5 and 10 year annualised returns so you don't need to work them out unless you want a specific time frame.

capital0ne

Prism wrote: »

Morningstar includes dividend reinvestment in its returns. It also gives 1, 3, 5 and 10 year annualised returns so you don't need to work them out unless you want a specific time frame.

Thanks for that, it's as I thought, just needed confirmation

So for the following if you had £1,000 for ten yrs then reading the Price row

CTY @ 13.19% you would have £1,131
RIT @ 11.43% you would have £1,114
BNKR @ 14.51% you would have £1,451

and that includes dividend reinvestment.

bowlhead99

capital0ne wrote: »

And Annual Returns% is defined as:
Annual returns %
The performance of a fund over calendar year periods.

My questions are:
1. Does this include dividend reinvestment? I don't think it does.

Yes, it does.

The glossary definitions on the Morningstar website are a little weak. If you look up 'return' for example, it says "the profit that an investor can receive from an investment". You can put two and two together for yourself, and realise that logically:

a)the profit you can receive must include both the increase in the capital, and receipt of the dividend;
b) when the dividend is received, it can be reinvested into the same asset, to generate more capital increases and dividends

- so that the return, or "profit that an investor can receive from an investment" must assume that the investor reinvests income receives rather than throwing the income in the bin and pretending it wasn't received or reinvested.

If you were to use the US version of the morningstar website, some of the definitions in the glossary are rather more detailed, e.g. (http://www.morningstar.com/InvGlossary/annual_returns.aspx)

Annual Returns

Annual total returns are calculated on a calendar-year and year-to-date basis. Total return includes both capital appreciation and dividends. The year-to-date return is updated daily.

For mutual funds, return includes both income (in the form of dividends or interest payments) and capital gains or losses (the increase or decrease in the value of a security).

Morningstar calculates total return by taking the change in a fund's NAV, assuming the reinvestment of all income and capital gains distributions (on the actual reinvestment date used by the fund) during the period, and then dividing by the initial NAV. Unless marked as load-adjusted total returns, Morningstar does not adjust total return for sales charges or for redemption fees.

Total returns do account for management, administrative, and 12b-1 fees and other costs automatically deducted from fund assets. See also Trailing Return.

The concept is the same for the Morningstar UK / Europe sites even if the glossaries only give a sentence or two on each word you look up in the glossary(more like a dictionary than an encyclopedia)

2. Can you calculate annualised returns from these figures using the usual maths?

Do you mean: can we calculate annualised returns from the "annual return %" that you were asking about? The annual return does not need to be annualised because it's already an annual figure and already includes reinvested dividends.

Or do you mean: is it possible for us, using 'usual maths', to re-calculate the annualisation of the returns for periods other than one year (e.g. six months or four months return being converted into an annualised return), and get the same figures as they got in the example which they gave?

Morningstar_example wrote:

Annualised return:
Refers to the conversion of the return on an investment into a yearly rate. For example, if Fund A returned 5% over six months and Fund B returned 4% over four months, Fund A´s annualised return is 10,25% and Fund B´s is 12,49%.

If you have a fund returning 5% after six months and it continues to deliver at that rate of return every six months: Start with 10000. Six months later it will have turned into 10500 (10000 + 5% of 10000). Another six months later it will have turned into 11025 (10500 + 5% of 10500). The 11025 you are left with after a year is the same as investing 10000 into a product which returned 10.25% per year.

If you have a fund returning 4% after four months and it continues to deliver at that rate of return every four months: Start with 10000. Four months later it will have turned into 10400 (10000 + 4% of 10000). Another four months later it will have turned into 10816 (10400 + 4% of 10400). Another four months later it will have turned into 11249 (10816 + 4% of 10816). The 11249 you are left with after a year is the same as investing 10000 into a product which returned 12.49% per year.

Likewise if you had a lower returning product which had returned 12.49% after three years you could flip the maths the other way round and with a bit of trial and error work out that it was an annualised rate of 4% a year.

Morningstar give you annual figures or annualised figures so that you don't need to spend much time annualising them yourself when you want to compare different products across different time periods.

The overview page shows total returns
Total Returns (GBP) 31/03/2019 for 10y
Price 13.19%

Same questions apply

Total Returns
The absolute return of the fund, expressed as a percentage.
TIA

Same answers apply. The total return is going to include the total profit you can make from the investment by owning it and by putting any cash payouts from the investment back into the product each time you get to an ex-div date.

If the fund you are considering is an 'accumulation' fund rather than a distributing product, you don't get any dividends to be able to put back into the product, it is just internally reinvested without any action on your part. An accumulation version of the fund will declare roughly the same total return in a given time period as a distributing version of the same product, because the latter will assume dividends are reinvested.

bowlhead99

capital0ne wrote: »

Thanks for that, it's as I thought, just needed confirmation

Classic.

"I assume it doesn't include dividend reinvestment"
"Well, it does include dividend reinvestment"
"Thanks, that's what I thought"

We've been here before with other topics
https://forums.moneysavingexpert.com/showpost.php?p=74098392&postcount=7

capital0ne wrote: »

Thanks Bowlhead, and Tom99, my tactic worked. By posting an answer that wasn't quite right challenges people to put it right, whereas a simple query usually results in a link to aa CGT calculator or no reply whatsover.

Many thanks to both of you

I think you are trolling us again with the next bit:

So for the following if you had £1,000 for ten yrs then reading the Price row

CTY @ 13.19% you would have £1,131

No. If you put 1000 into an investment at the end of March 2009 and over the next ten years you get an annualised return of 13.19% (annualised means PER YEAR); and you hold it for TEN YEARS, you are not going to just end up with 13.19% more than you started with.

You would get 13.19% in the first year so going into the second year you would already have £1131.90, and then you would get 13.19% on that, turning it into £1281.19 by the end of the second year, and then during the third year the £1291.19 would grow by another 13.19% to £1450, and so on.

After ten years you would have £3452, which is about a 250% return on the initial £1000, rather than the 13.19% you were expecting.

and that includes dividend reinvestment.

Yes

capital0ne

Cheers all, and I had read morningstar.com glossary - far more comprehensive.

Here's another quickie for you all

I can use the XIRR function in Excel (or libreOffice) to calculate an annualised rate of return for a number of cash flows in and out of an account. Easy enough

Is there an equivalent that can use %ges for example:

1 Jan 2000 +20%
1 Jan 2001 0%
1 Jan 2002 10%
1 Jan 2003 -10%
1 Jan 2004 5%
1 Jan 2005 5%

How can i work out the annualised %ge for the period 1 Jan 2000 - 31 Dec 2005?

bowlhead99

capital0ne wrote: »

Cheers all, and I had read morningstar.com glossary - far more comprehensive.

I call BS, because if you had read the more comprehensive version of how they calculate returns on an income reinvested basis you wouldn't have stated that you assume it does not include income reinvested

capital0ne wrote: »

Is there an equivalent that can use %ges for example:

1 Jan 2000 +20%
1 Jan 2001 0%
1 Jan 2002 10%
1 Jan 2003 -10%
1 Jan 2004 5%
1 Jan 2005 5%

How can i work out the annualised %ge for the period 1 Jan 2000 - 31 Dec 2005?

If dates and percentages are your columns A and B, why not just add a column C with the running total of the value.

So the top one corresponding to 1 Jan 2000 is £10000 and the next one down on the 1 Jan 2001 line is 12000 (10000 from the cell above +20% from the cell above and left)

And the next one is 12000 (12000+0%) and the next one is 13200 (12000+10%) and so on until you get to the value at end of 2005 being £13097.70

That sequence of returns turned £10000 at 1/1/2000 into £13097.7 at 1/1/2006. You already know how to use XIRR, so it is as simple as pointing the XIRR formula at the cells with those two cashflows (-10000 and +13097.7) and those two dates (1/1/00 and 1/1/06).

Or if you are dealing in fixed one-year chunks you could just count the years and see it is 6 years giving an overall cash multiple of 1.30977, so you can annualise it by using 1.30977^(1/6) as a formula, which gives a result of 1.046. So 4.6% a year for 6 years gives 30.97% at the end.

capital0ne

bowlhead99 wrote: »

If dates and percentages are your columns A and B, why not just add a column C with the running total of the value.

Or if you are dealing in fixed one-year chunks you could just count the years and see it is 6 years giving an overall cash multiple of 1.30977, so you can annualise it by using 1.30977^(1/6) as a formula, which gives a result of 1.046. So 4.6% a year for 6 years gives 30.97% at the end.

I did just as you described as soon as I posted.

But I don't get how you derived the cash multiple of 1.30977 - can you give us the workings - or explanation - cheers

capital0ne

bowlhead99 wrote: »

I call BS, because if you had read the more comprehensive version of how they calculate returns on an income reinvested basis you wouldn't have stated that you assume it does not include income reinvested

DBS - Double checking replies of course ;-)

bowlhead99

capital0ne wrote: »

I did just as you described as soon as I posted.

It doesn't surprise me that for the umpteenth time on this thread and your previous threads you asked a question because you don't know the answer or method, and then was told the method, and then came right back with something akin to 'yes just as I expected, I knew what to do all along'. Lord give me strength...

But I don't get how you derived the cash multiple of 1.30977 - can you give us the workings - or explanation - cheers

Really? But you told me that you "did just as you described" (adding a formulaic column of values next to the date column and percentage column), so you have seen all the numbers and you have the workings yourself, and even if you have not really done the workings yourself you have them in my post above.

So you know you started at 10000 and six years later ended at 13097.7. The money might not be worth the same in real terms because of inflation etc over the six years, but in cash terms the value you could 'cash out' at the end was 1.30977 times what was put in.

Are you really saying, I started investing £10000 and I know I ended with £13097.7, can someone give me the workings or explanation of how I should know that 13097.7 is a 1.30977 multiple of the starting value of 10000 ?


In simple terms:
If you started with 10000 and ended with 30000 we would say the ending value is 3x the starting value. If you wanted to work out the '3' you would divide the 30000 by 10000 and get it, or you could multiply 10000 by lots of different numbers and settle on 3 being the one that got you to 30000.

Likewise if you wanted to work out what multiple of 10000 is represented by a value of 13097.7, you could divide the 13097.7 by 10,000 and get 1.30977.

Perhaps the confusion is that you are thinking there is two alternative methods: (a) take the sequential returns to build up £10,000 to £13097.7, or (b) somehow know that it will be 1.30977 multiple without working it out.

That's not the case. You still have to multiply out the actual annual returns to get to the total 13097.7 value at the end.

What I was suggesting as the two alternative methods - once you've worked out that 10,000 turns into 13097.7 by looking at your table of data - is calculating the annualised amount from the total amount. To do that, you can either (1) put the two dates and two values into an xirr formula, or (2) note that you want to get the annualised version of a 6 year return and so take the sixth root of the 6-year multiple.

Afterthought - to get to 1.30977 total multiple from 6 periodic multiples of equal-length-periods, you can of course just pretend that £1 was invested instead of £10000 so the period end valuations just go 1.2 x 1 x 1.1 x 0.9 x 1.05 x 1.05 = 1.30977. Maybe that would be easier for you.

"Thanks, that's what I thought but just wanted to check"
"You're welcome" :rotfl:

talexuser

Another thread from capitalOne - turns out just as I expected all along!