How to compare performance figures.

    At first glance a fund that shows a 93% one year return seems to compare very favorably against other funds. With a return like that it appears like a pretty good one to jump into boots an' all. And so it might be, but we all know 'past performance is no guarantee of future results' don't we.

    It could be that when we look more closely at the three-year, five-year and even ten-year performance figures a different picture may appear.

     As an example let's look at a fund with the following returns:

  (For the purposes of simplicity this explanation is not being technically accurate because I'm not considering any effects of compounding. But it still makes the point that a few years of poor returns can be hidden by a couple of exceptionally good years.)

   With this fund it also appears at first sight that the fund is improving steadily.

   In the last year the return of 93% was terrific. The three year return also looks pretty good at 50% but what happened to bring that average down. Well if we do a simple math calculation: (83 + x + x)/3=50 where x is the return for each of the 2 years before the last year, we soon find the value of x to be 3. That is an average return for each of those two years to be only 3% pa!

   Now remember that's an average. It is quite possible that one of those years was higher and the other lower, possibly even negative.

If we go a step further and compare the 5 year return with the formula (93+3+3+x+x)/5=20 we find the average return for those two years was only 0.5%!

What originally looked like a pretty good fund has actually been a dismal performer for 4 years running, before a phenomenal last year. So firstly you can see it is probably highly volatile. Having the 10 year figures will add greatly to the picture you can make up of the fund.

   Some funds mislead people by advertising their returns this way. It is always better to get the actual returns for each year so you can compare returns properly. Having the actual returns for each year gives a more accurate picture.

   Since offshore funds do not advertise, this is not a problem but you still need to compare the return year by year.

   Now the world's top 20 funds which can be accessed through this website are organized into groupings of the top 20 performers over the year to date, the top 20 performers over the last 3 years, the top 20 performers over the last 5 years and again over the last 10 years. So the top 20 list doesn't comprise only 20 funds but often over 60 different funds. The bonus with these lists is that the returns for each year is also listed so you can easily compare the performance from year to year as well as compare the real rate of return of different funds over the applicable time period.

Here is a simple Financial Calculator with which you can check the rate of return of an investment over a particular time period.

You are here:
Compare Mutual Funds - how to analyze what the 1 year, 3 year, 5 year and 10 year returns mean, and how to compare funds with those figures.

Mutual Funds - An explanation of what they are.

Mutual Fund Investing - How funds make money, how you make money from them, explanation of distributions and some special dates.

Offshore Investing Mutual Funds - an outline of why offshore funds beat all, and a bit about taxation.

Advantages - a discussion of the advantages and the disadvantages of these funds.

Types of Mutual Fund - a listing and explanation of all the different types of funds onshore and offshore.

Offshore Investments - how to go about making your offshore investment through an offshore trust.

Understanding the Mutual Fund Prospectus - an explanation of some of the main things to look for when reading a prospectus.

Choosing a Mutual Fund - 6 important things to consider before making your decision to invest in a particular fund.

Mutual Fund Managers - A very comprehensive list in alphabetical order of many of the managers of mutual fund families around the world.