Friday, November 25, 2011

ETF Performance

Comparing ETF performance is actually somewhat tricky, though the issue isn't particular to ETFs. Though the CFA material has whole sections to deal with presentation of performance, there remains many variables. Returns can be annualized (though generally only performance terms 1 year or more should be annualized) or cumulative. The prices used could be bid-ask midpoints at closing (which is the preferred method by ETF issuers) or last trade price (which is the data available to us mere mortals). The performance can be total return (including any distributions such as dividends and capital distributions) or market price return. The cumulative return could end on today or the last business day of the preceding month. Then there is market and NAV performance. All these factors can make a significant difference in the calculated performance numbers, especially over longer periods. For illiquid issues, the bid-ask midpoints and last trade may differ considerably. Yesterday, I collected cumulative returns for IYY (iShares Dow US Broad Index ETF) from a few places:
Schwab Cumulative
1 mo11.311.3
3 mo-3.3-3.2
6 mo-8.0-8.0
1 yr-7.8-7.8
Yahoo "Trailing Returns"
1 mo11.3011.33
3 mo-3.26-3.17
1 yr7.767.84
iShares Cumulative
1 mo11.3111.33
3 mo-3.15-3.16
6 mo-7.96-7.99
1 yr7.837.87

Though the Schwab and Yahoo data are agreement, notice how the iShares reported performances diverges starting from the 3 mos point. In a low yield environment, the difference between -3.26% and -3.15% cumulative market returns is huge. I have not been able to reconcile this discrepancy exactly. It is not merely the $0.262 dividend distribution during the 3-mo period. I think the moral of the story is threefold:

  1. take nothing for granted
  2. always read the fine print on how performance is calculated
  3. try to obtain performance data from multiple sources

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.