Dow Jones Industrial Average vs. its TOTAL RETURN and S&P 500 Index vs. its TOTAL RETURN
I visited a friend’s office last week. He told me about a classmate who launched a fund back in 1998. Assets under management have grown to over $1 billion, generating $20 million in management fees annually.
I was stunned to see on the one-page sales blurb where the return of the fund was billed as 23% compounded vs. 2.71% for the S&P. I said to my friend that there are several obvious problems with this comparison:
- The S&P is an inappropriate benchmark for a fund that dabbles in all kinds of other stuff;
- The S&P returns are not adjusted for the leverage used in the fund; and,
- The most egregious offence of all, even if the S&P were the proper benchmark, is the fact that the total return (dividends reinvested) of the index was not disclosed to clients.
From here on in, I shall update these total return charts every month so that you know the real scoop. Come to think of it, perhaps there is a good reason why these numbers are not widely disseminated…