Friday, 26 August 2011

Investment Benchmarking & Reporting - It's Time to Get Total Return

Pull up a chart of the S&P/TSX Composite Index from Google, from MSN, from Yahoo, from the Financial Post, from the Globe and Mail, even from the TSX's own website TMX Money, nor even from the S&P itself, which owns and maintains the index, and what do you get? The price index only, that's what. You do not get the Total Return Index, which includes not just the price, it also includes the dividend income from stocks. The same goes for any other stock index.

Why does it matter? The dividend part of the return - currently running at 2.7% on the TSX according to TMX Money - makes a huge difference over time with compounding. When doing portfolio assessment and benchmarking, whether it's your own, or a financial advisor's, a mutual fund or ETF company's, or a discount broker's, it is deception not to use Total Return for whatever index or asset class is in question.

How are the ETFs? - Amongst ETF providers, iShares and Claymore to their credit explicitly use Total Return indices while with BMO it isn't clearly stated (e.g. neither in the download index spreadsheet nor in the index description for its Dow Jones Canada Titans 60 Index ETF), which in itself is bad.

How about Financial advisors? an example - I don't know how widespread this is amongst financial advisors, and I am only picking on this guy because he happened to be a guest on BNN the other day so I looked up his website, but I was horrified to find that David Baskin Financial's performance against the index in the download blurb clearly uses the price only version of the TSX. How do I know? One of the few places we can access free annual Total Return index data is another financial advisor's website, Norbert Schlenker's Libra Investment Management, in this download spreadsheet. Line up the Baskin and the Libra numbers year by year and see the consistent higher performance of the Libra Total Return numbers e.g. 2010 Baskin TSX 14.4% vs Libra TSX TR 17.6%. Do the compounding of the TR numbers using Stingy Investor's Asset Mixer, who has taken Libra's data and turned it into a handy tool, and the 10-year TSX TR performance up to 2010 is 6.6%. Now the Baskin Financial 6.4% 10-year result doesn't look so good as it did against the blurb's TSX number of 4.2%. (It's also interesting that Baskin's "our team" web info mentions no financial designations but emphasizes TV and public appearances while Schlenker is a CFA, CFP, CIM, FMA and emphasizes his adherence to a code of ethics.)

There's another source of daily updated Total Return data buried within GlobeInvestor. Under Investing > Markets, enter stock symbol TSXT-I for the TSX Total Return Index. It allows one to benchmark year-to-date and one-year TR performance for the TSX on any day. The Libra data is annual year-end only.

Why the limited availability of Total Return data? Perhaps it is just the historical momentum that has seen the price index always being the quoted number, a result of the difficulty in computation in the days before computers and databases (which to my mind explains that widely-cited anachronism, the Dow Jones Industrial Index). Perhaps it is the fact that the TSX sells the data and the Total Return data is the meaningful valuable part while the price index is the loss leader.

Update September 15th - Broker BMOIL confirmed to me (at last, it took about two weeks to get the answer) that their benchmarks which compare against the investor's portfolio do actually use Total returns, not just Price Returns. Good, now I wish they would put a note to that effect on the relevant webpages.

Whatever the reason, ordinary investors need this data. It is time for the financial industry, and the media, to start quoting the right numbers.


Canadian Couch Potato said...

Great point, DIY. Index data that omit dividends have been used to make active funds and advisers look good for a long time. These are the same people who talk about how "the return of the S&P 500 was zero" over the "lost decade." Imagine buying a bond that paid 3% interest, and when it matures at face value you say your return was zero. It's no different.

For the record, when index funds and ETFs report their performance, they always uses total return benchmarks.

Alan said...

Excellent points; it is high time to have this information available so we can have the proper numbers. I llike to compare apples to, well, apples.

Anonymous said...

Very good and informative.

Obviously they want their own managed funds (which are always calculated with dividends re-invested) to appear better than the naked index without dividends.

I wonder if there is a symbol for the TSX 60 total return?

CanadianInvestor said...

Anon, I just tried, couldn't find the symbol for TSX60 TR in GlobeInvestor in 10 min; it's well hidden of course!. A very close proxy is the Horizons ETF, symbol: HXT, which tracks that index. see

Low Risk Guy said...

Good piece. For Total Return I find useful, by employing the performance of the index funds (for those funds that do not employ sampling or position weight capping, i.e. are truly reflective of the index performance). Simply search for TSX Composite, etc. and employ the performance of the funds/indexes that indicate TRI or Total in the name. Cheers, Low Risk Guy

Peter said...

The TSX Total Return Index is charted at:

If you select Time Period = "Max", the chart displays the month-end index values - so if you have a few min to spare, you can pull-off any particular values you need. "10 year" or less displays the weekly index values.

I've checked the annual returns calculated from these values against the Libra year-end data - they are the same.

CanadianInvestor said...

Thanks Peter, very handy source.

Wikinvest Wire

Economic Calendar

 Powered by Forex Pros - The Forex Trading Portal.