Here are some terms to know as you review the Fund Performance Chart.
When you look at the performance of a fund, there are a couple of ways to tell if that fund is performing well or poorly. One common way is to use a benchmark as a standard for comparison. That way, you have something to measure against to see if the fund is performing the way you would expect it to.
For example, if your fund is invested in very large American companies, you might use the Standard & Poor’s index of 500 stocks (S&P 500 Index) as a benchmark. The S&P 500 Index is a popular standard for measuring stock market performance among the biggest, most broadly based companies in the U.S. Financial analysts follow this index closely because it is a key indicator of market trends. In this case, each quarter you could look at your fund’s performance and see whether it is doing better or worse than the S&P 500 Index.
Every fund in MaineSaves has a benchmark except the Fixed Account. That fund doesn’t need a benchmark because it’s guaranteed to return a certain small percentage.
Return is the amount of money your investment made for you. Usually a fund’s return is stated as a percentage of the amount you invested, so a $5,000 investment that made $400 earned an 8% return ($400 divided by $5,000).
Type of Management
The Fund Performance Chart shows two types of management:
- Passive management means that a portfolio manager is trying to achieve a return for investors that is comparable to the return of a single broad-based market index or a mixture of indexes in a cost-effective manner. Investment management fees for passively managed funds generally are lower.
- Active management means that a portfolio manager is actively trading securities in an attempt to produce above-average returns. Whatever the market does, as measured by certain benchmarks, the manager will try to do better, and increase value for investors. Investment management fees for active management tend to be higher.
Note: Investment management fees are deducted from the fund’s investment return, so the earnings posted to your account are already reduced by the investment management fee. You may look at the fees and decide the returns aren’t worth the fees you’re paying. Or, you may decide that the fund is performing so well that you don’t mind paying the fees.