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Mutual Funds - Coggle Diagram

- - - - measures true performance, not affected by deposits or wds
      - daily valuation method = measure changes in NAVPS everyday, data intense - needs daily data so not used for real estate wherein NAV doesnt change everyday, very accurate
      - modified dietz method = simple, constant rate of return, weights each cash flow by how long it was in portfolio, bigger weight if you invested earlier in the year than the money you added at the end
    - - all funds to report returns same way, investors can compare easily, eg: ABC eq fund earns 6%, XYZ market fund earns 5% can't compare both because ABC eq took more risk
      - prevents misleading advertising, ensure consistency, requires transparent reporting in sales
    - - benchmark comparison = each fund type compared to a benchmark index, canada eq fund to sptsx composite index & canadian bond fund to ftse canada universe bond index
      - peer group comparison = suitable index unavailable, compare to group of similar funds
  - - - dont compare dissimilar funds = cant fairly compare bond funds to equity funds as bonds safe with smaller returns whereas eq funds are riskier with higher potential returns
      - misleading names = fund might have a name large cap but still would hold 10% small cap stocks
      - classification errors = misclassified funds can mess up cx pf; cx only wants 10% exposure to small cap corps has small cap funds for 10% but one of the funds named ' large cap' might have a 5% small cap corps
      - management stye difference = one eq fund might be aggressive, another might be conservative so cant compare
      - consider risk with return = measure using standard deviation (how much funds returns move up or down), beta (how closely fund moves with market), worst periods (how bad losses can get), no of losing years (how many times fund lost money historically)
      - market cycle awareness = negative return acceptable if in bear market, MF gave -5% return but overall market gave -15% return so your MF still better
    - - survivorship bias = when you only compare the funds that exists today not the ones that vanished; eg- liam in class of 100, 10 went to med school, liam finished 10th, liams dad thinks hes last but when compared to others who dropped out he performed better
      - other pitfalls = overemphasizing past performance (manager or market might have changed), ignoring risk taken to achieve returns (fund might have overleveraged to produce those returns), assuming past performance predicts future results (markets are unpredictable, can change anytime), selective performance reporting (fund may only highlight outperforming yrs on reports & not underperforming yrs)