7 Mutual Fund Performance Measures & What They Mean

mutual fund measuresFor years, investors, fund managers, and stock analysts have sought reliable indicators to project the future return and risk of owning an individual stock, bond, or a portfolio of securities. The underlying assumptions are as follows:

  1. All investments have inherent risk which is assumed upon ownership.
  2. Returns and risk can be objectively quantified by mathematical analysis of historical results.
  3. The correlation of potential return and underlying risk constantly varies, providing opportunities to acquire investments with maximum potential return and minimal risk.

These assumptions exemplify modern portfolio management and are the basis for the widely used capital asset pricing model (CAPM) developed in the 1960s, which led to a Nobel Memorial Prize in Economics for its creators. Enabled by technology, Wall Street wonks amass and analyze massive amounts of historical data searching for hidden, often arcane relationships to identify undiscovered opportunities for gain without risk. The results of their analysis are often publicly available for use by private investors.

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