Now that first-quarter performance data for bond and equit funds have begun to appear, you can check on the funds you own and compare their results for various periods that ended March 31 with others having similar investment objectives or with bond and stock indexes.
You can see whether another fund looks more promising -- more likely to help you attain your investment goals -- than one of yours.You may decide whether to stay with the funds you hold and perhaps invest more money in them, to switch funds or to add a new one.
It's a good bet that the data on which you'll rely have been calculated by Lipper Analytical Services, which covers more funds than anyother service and whose statistics are the most widely used.
But whether the figures you look at were computed by Lipper, CDA, Morningstar or others, it's also a good bet that you may get some wrong impressions if you compare the published results of load and no-load funds without taking sales charges (or loads) into account.
In calculating a fund's total return, data services ignore any sales charges that investors may have to pay.
Serving the fund management companies that are their primary clients, the data services see their job as measuring how well a fund's portfolio has been managed -- not how much you may have earned by investing in it.
The two are the same only in the cases of no-load funds, whose shares you can buy and sell at their net asset values (NAVs). When you invest in load funds, a sales charge of up to 8.5 percent may be added to the NAV at the time you buy shares or a deferred sales charge of up to 5 percent may be subtracted from the proceeds when you sell.
Fund companies need total return data, uniformly calculated by independent services, to compare their portfolio managers' performances with those of other funds in the same classification and with benchmarks such as the Standard & Poor's 500 index. They use the data for several purposes, often including the determination of managers' yearly bonuses. Adjustment for sales charges that go to brokers and fund distributors would make the comparisons unfair.
You, on the other hand, want to know how much you're earning -- or could have earned -- on your money.
If you have to pay a "front-end" load when buying shares, not all of your investment is working for you.
If you have to pay a "back-end" load when redeeming shares, you receive less than the market value of the shares at the time you sell. In either case, the return on your investment would be less than if the fund charged no load at all.
While maximum loads for small investments range from 1 percent to 8.5 percent of the NAV, most load funds are at around 4 percent to 5 percent. Rates drop below maximums for large purchases. Deferred sales charges fall with the length of time shares have been held and eventually disappear.
The tables illustrate the impact that loads can have on those who invest in equity and bond funds. They show the total returns for the leading performers for the year that ended March 28 -- ranked before adjustment for sales charges -- in two Lipper categories: capital appreciation funds, which seek to maximize capital gains, and GNMA funds, which invest in government-backed GNMA securities.
Note that the effect of a load -- of the diversion of, say, $50 of a $1,000 investment -- diminishes with time, but even the best managers cannot offset it altogether.
Now you might not begrudge a broker a 4 percent to 5 percent commission if he or she is responsible for your investing in an equity fund earning a 25 percent total return for one year.
But no broker can assure you ahead of time that a fund will do that well; moreover, no fund is likely to average 25 percent a year over a long period. During the 12 months that ended March 31, for example, the average return of the 140 funds in the capital appreciation group was only 11.6 percent.
For bond funds, high double-digit total returns are, of course, an even greater rarity. Loads have a more pronounced effect on their investors and can turn a positive result into a negative in a poor year for bonds.
If you want to analyze the performance of a mix of load and no-load funds, you can put them on a comparable basis. When calling for the prospectuses that you need to study, simply ask the service representatives at the load fund families for the total returns after adjustment for sales charges for the latest 1-, 5-, and 10-year periods.