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Mutual Fund Performance

When reviewing a mutual fund's historical performance it's important to consider the following:
  • Total return
  • Performance against benchmark index
  • Performance against peers
  • Past performance is not a guarantee of future returns.

Measures of a fund's performance can be found:
  • The Mutual Fund Profiles and Mutual Fund Screener available through a Wells Fargo Advisors brokerage account
  • The fund's Web site
  • The fund's annual and semi-annual shareholder reports
  • Financial Web sites


The annual and semi-annual reports also generally provide a list of fund holdings and an explanation from the fund's manager about recent economic and market factors that may have affected the fund's performance.

Measuring Total Return
You should review a fund's historical performance as part of your mutual fund evaluation.

As with other investments, you measure a mutual fund's past performance in terms of "total return". Total return is the combination of any income from interest, dividends and capital gains during a period, plus any gain or loss in net asset value over that time.

Total return = income + dividends + capital gains + gain(loss) in NAV

When comparing the performance of different funds, you may want to review both recent performance and a longer time frame, such as 5 or 10 years, to see how the fund has performed in the current market environment and historically over different market cycles.

Measuring Against Benchmark Index
You should also review a fund's return against its target benchmark index or a widely recognized standard group of securities, such as the S&P 500 Index. A fund's target benchmark can usually be found in the prospectus.


Investment Objective
Stock and Bond Benchmark Indices1
Large Cap Stock Funds
Dow Jones Industrial Average Index2
S & P 500 Index3
Mid Cap Stock Funds
S&P MidCap 400 Index4
Small Cap Stock Funds
Russell 2000 Index5
Total Stock Market Funds
Russell 3000 Index6
Taxable Bond Funds
Lehman Brothers Aggregate Bond Index7
Municipal Bond Funds
Lehman Brothers Municipal Bond Index8
International Stock Funds
MSCI EAFE,® Index9

Performance Against Peers
You should also compare each fund's return against the average return for funds with similar investment objectives and expenses to see how a fund has fared against its peers. If a fund consistently under performs its peers, you may want to do some additional analysis to determine the cause or decide if another fund might actually be a better solution for your needs.

Past Performance Is No Guarantee Of Future Returns
While it is important to consider measures of past performance, you should evaluate that performance against the market and economic environments. If the fund invests in stocks that are typically cyclical in nature — for example, automobile and housing stocks — the fund's recent performance may reflect the height of a cycle and not the future downturn of the business cycle. In addition, market volatility may affect short-term performance.

Monitor Funds
Once you have evaluated and purchased your selected mutual funds, it is important to monitor each fund's performance on a regular basis and assess its performance against your financial goals and your target portfolio asset allocation. Wells Fargo Advisors brokerage accounts have tools to assist in tracking the performance of your portfolio and the ability to download your investment information into financial software such as Quicken® or Microsoft® Money.

For more information on types of mutual funds, buying and selling funds, and mutual fund taxes, see our additional mutual fund investing articles.

1Indices are unmanaged. Indices are unmanaged and do not reflect the payment of advisory fees and other expenses associated with an investment in a mutual fund. Investors cannot directly invest in an index.

2A price-weighted average of 30 actively traded blue chip companies.

3 A widely recognized, unmanaged index of 500 publicly traded stocks that includes the reinvestment of dividends.

4 An unmanaged index that consists of 400 domestic stocks chosen for market size, liquidity, and industry group representation.

5 An unmanaged index that measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.

6 An unmanaged index that measures the performance of the 3,000 largest U.S. companies which represents approximately 98% of the investable U.S. equity market.

7An unmanaged index that tracks the total U.S. bond market, which includes U.S. Treasury, government agency, investment-grade corporate bond and mortgage-backed securities with maturities of at least one year. The index includes reinvestment of interest.

8An unmanaged index considered the total return performance benchmark for the long-term investment-grade tax-exempt bond market. The index includes reinvestment of interest.

9The MSCI Europe, Australasia, Far East (EAFE) Index is an unmanaged, free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada.

 
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These articles are for information and education purposes only. You will need to evaluate the merits and risks associated with relying on any information provided. Although this article may provide information relating to approaches to investing or types of securities and investments you might buy or sell, Wells Fargo and its affiliates are not providing investment recommendations, advice, or endorsements. Data have been obtained from what are considered to be reliable sources; however, their accuracy, completeness, or reliability cannot be guaranteed. Wells Fargo makes no warranties and bears no liability for your use of this information. The information made available to you is not intended, and should not be construed as legal, tax, or investment advice, or a legal opinion.
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