Selected Per-Share Data and Ratios
Table 14–5 summarizes a typical fund’s performance over the periods
shown, and this information can be found in the fund’s prospectus or
annual report. Although the selected per-share data vary in detail from
fund to fund, the format is essentially the same.
The “Investment Activities” section of Table 14–5 shows the
amount of investment income earned on the securities held by the
fund; this income is passed on to the fund’s shareholders. For
instance, in 2006, all of the net investment income of $0.37 was distributed
to the shareholders (line 4), but in 2005, only $0.30 of the
$0.31 of net income was paid out to shareholders. In 2005, the $0.01
that was not distributed to shareholders increased the NAV (line 7)
in the “Capital Changes” section. (The capital loss and distribution
of gains were reduced by this $0.01 because it was not distributed.)
Capital gains and losses also affect the NAV. Funds distribute
their realized capital gains (line 6), but the unrealized capital gains
or losses also increase or decrease the NAV.
Changes in the NAV from year to year give some idea of the
volatility in share price. For instance, for the year 2005, the NAV
decreased by $1.01, which is a 9.17 percent decrease. If you invest
$10,000 knowing that it could decline to $9,082.65 (a 9.17 percent
decline), how comfortable would you feel with this investment in
the short term?
The portfolio turnover rate gives prospective investors an
idea of how actively the investment assets in a fund are traded.
A turnover rate of 100 percent indicates that the investment assets
are sold an average of once during the year. For example, if a fund
holds stocks with a value of $100 million, that means $100 million
of stocks are traded once a year with a 100 percent turnover rate.
According to Morningstar Mutual Funds, as reported by the
Vanguard Group (1999), the average stock mutual fund turnover
was 86 percent. High portfolio turnover (more than 200 percent)
might not necessarily be bad for shareholders in that the fund
might be generating high capital gains.
Selected Per-Share Data and Ratios
High turnover is an indication, however, for shareholders to
expect capital gains distributions by the end of the year. In
accounting terms, the amount of the distribution per share is
deducted from the NAV of the shares in the fund.
Index funds have extremely low turnover, around 5 percent
(The Vanguard Group, 1999). The advantages of lower turnover are
decreased costs and greater tax efficiency. A fund also might have
low turnover because it has been holding low-performing stocks for
a long time in the hopes of a turnaround. This situation has occurred
with many value funds where value stocks did not participate in the
stock market rally of the three years from 1996 to 1999.
The ratio of operating expenses to average net assets is fairly
low in the example in Table 14–5 (close to one-half of 1 percent).
You can determine an average total return by considering the
three types of returns on a mutual fund—dividends distributed,
capital gains distributed, and changes in share price—by using the
This simple 13.5 percent yield indicates that an investor in this
fund received double-digit returns mainly because of gains realized
and increases in the NAV share price. The more volatile the NAV of
the fund is, the greater the likelihood there is of unstable returns.
Categories in Trading Mistakes
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Using too much Leverage
Determining the proper capital requirements for trading is a difficult task
Failure to control Risk
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Useful Advices to Beginning Trader
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