Funds and prospectus benchmarks.

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jackal
Posts: 93
Joined: Thu Jan 14, 2010 7:24 am

Funds and prospectus benchmarks.

Post by jackal » Fri Jan 12, 2018 5:01 pm

How do finds choose their prospectus benchmarks?
For instance,
Why does dwusx have a prospectus benchmark of MSCI all world ex USA small cap index (NET DIVIDENDS) and dtmvx have a benchmark of Russell 2000 value index (gross dividends I’m assuming?)
Thank you!

alex_686
Posts: 3723
Joined: Mon Feb 09, 2015 2:39 pm

Re: Funds and prospectus benchmarks.

Post by alex_686 » Fri Jan 12, 2018 5:08 pm

Part of it is what the portfolio manager wants to be bench-marked against. If your universe of expertise is US domestic stocks - large and small - then you chose the Russell 3000. If international, then something MSCI. Sometimes the portfolio manager hews closely to the index they have chosen, sometimes they go farther afield.

Part of it is marketing. Everybody knows what the S&P 500 is, few know what CRSP is. FYI, index providers charge to have their name used as a benchmark. So there is that.

As an aside, the MSCI "Net Dividends" is something special. There is no way to replicate "Gross Dividends" internationally. International taxes are complex. EU countries don't recognize the tax advantage of your domestic IRA. So MSCI provides gross returns but they also provided a net return for dozens of different countries to reflect the impact of international taxation.

jackal
Posts: 93
Joined: Thu Jan 14, 2010 7:24 am

Re: Funds and prospectus benchmarks.

Post by jackal » Sat Jan 13, 2018 12:19 am

So do the net returns not have any dividends whatsoever? (The question was why some benchmarks are gross and others are net dividends)
Thank you.

alex_686
Posts: 3723
Joined: Mon Feb 09, 2015 2:39 pm

Re: Funds and prospectus benchmarks.

Post by alex_686 » Sat Jan 13, 2018 8:06 am

jackal wrote:
Sat Jan 13, 2018 12:19 am
So do the net returns not have any dividends whatsoever? (The question was why some benchmarks are gross and others are net dividends)
In this context, MSCI Net returns are the returns after foreign withholding tax. It can be presented either as a price return or a total return (dividends reinvested back into the index). When you are reading the marketing materials, funds must make apples to apples comparensions. If the fund is showing dividends reinvested, the index must also show reinvested dividends. There should be a note by the presentation.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Funds and prospectus benchmarks.

Post by dbr » Sat Jan 13, 2018 9:16 am

For anything except an index fund benchmarking is nothing more than a sales tactic.

jackal
Posts: 93
Joined: Thu Jan 14, 2010 7:24 am

Re: Funds and prospectus benchmarks.

Post by jackal » Sun Jan 14, 2018 12:04 am

alex_686 wrote:
Sat Jan 13, 2018 8:06 am
jackal wrote:
Sat Jan 13, 2018 12:19 am
So do the net returns not have any dividends whatsoever? (The question was why some benchmarks are gross and others are net dividends)
In this context, MSCI Net returns are the returns after foreign withholding tax. It can be presented either as a price return or a total return (dividends reinvested back into the index). When you are reading the marketing materials, funds must make apples to apples comparensions. If the fund is showing dividends reinvested, the index must also show reinvested dividends. There should be a note by the presentation.
https://us.dimensional.com/funds/world- ... eted-value

That is where I am checking out the prospectus. Can’t see how the returns are being calculated for the fund vs. the index.

alex_686
Posts: 3723
Joined: Mon Feb 09, 2015 2:39 pm

Re: Funds and prospectus benchmarks.

Post by alex_686 » Sun Jan 14, 2018 8:59 am

jackal wrote:
Sun Jan 14, 2018 12:04 am
That is where I am checking out the prospectus. Can’t see how the returns are being calculated for the fund vs. the index.
If you check out the fact sheet, immediately under the return presentation it states that the fund's returns are after expenses and dividends are reinvested. Does this help?

jackal
Posts: 93
Joined: Thu Jan 14, 2010 7:24 am

Re: Funds and prospectus benchmarks.

Post by jackal » Sun Jan 14, 2018 2:33 pm

Yes I did see that. Is it fair to compare the fund with dividends reinvested to an index without dividends. When I check vanguard, the comparison seems to be more apples to apples. Or am I misreading this?
Thank you.

alex_686
Posts: 3723
Joined: Mon Feb 09, 2015 2:39 pm

Re: Funds and prospectus benchmarks.

Post by alex_686 » Mon Jan 15, 2018 10:23 am

jackal wrote:
Sun Jan 14, 2018 2:33 pm
Yes I did see that. Is it fair to compare the fund with dividends reinvested to an index without dividends. When I check vanguard, the comparison seems to be more apples to apples. Or am I misreading this?
The wording is poor, but I would assume the performance of both the fund and the index are with dividends reinvested. To do otherwise would be very odd.

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