How do you calculate the excess return in real-time or indexed mutual Fund?


On exchange-traded funds (ETFs), the income must equal the adjusted risk (or beta) is a measure that exceeds the reference instrument, or annual expense ratio. It’s easy to appreciate mutual index funds versus the basic index: simply subtract the total return of the benchmark of the value of the net assets of the Fund to find the excess return. Because of mutual Fund expenses, excess return on an index Fund is usually negative.

As a rule, investors prefer index mutual funds and ETFs that are superior to their performance and positive excess returns. Some investors and analysts believe that it is almost impossible to generate additional income for long period of time managed mutual funds in connection with a predominance of high fees and uncertainty on the market. (For associated reading, see “mutual index funds compared to index ETFs.”)

The calculation of the excess return exchange traded Fund

Like most mutual index funds, most ETFs to Underperform relative to their benchmark indices. Exchange traded funds tend to have higher excess returns on average than mutual index funds.

I think the expected return for the data as real-time alpha at a given price and risk. Several different measures of risk can be used for interfacing in real time with the standard; one common example is the use of weighted average cost of capital. If you don’t have or don’t want to use the annual expense ratio or a simple reference when calculating the excess in real time, allowing the use of gross income in excess of the expected return-based model capital asset pricing formula.

The formula of CAPM can be written as follows:

Total income in real-time = (risk-free rate of return) + (real-time beta * (market yield – risk free rate of return)) + excess return

Rearranged, the formula looks like this:

Excess return = (risk-free rate of return) + (real-time beta * (market yield – risk free rate of return)) – total return in real time

Using the CAPM, you can compare two portfolios or ETFs with the same or very similar risk profiles (beta) to see which produces excess returns. (For associated reading, see “a model of asset pricing: a review.”)

The calculation of abnormal returns for index funds

Index funds are designed to avoid large positive or negative excess returns relative to their index. The creators of the Fund, the utilization of the risk-control technology and passive control to minimize the expected deviation from the benchmark.

Calculating the excess return for an index Fund is easy. To take a simple example, compare the total returns index S&P 500 index mutual Fund the performance of the S&P 500. Although perhaps unlikely, for an indexed Fund to outperform the S&P 500. In this case, excess returns will be positive. It is more likely that administrative fees associated with mutual funds will produce a slightly negative abnormal return.

(For associated reading, see “mutual Fund returns.”)

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