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Graham Westmacott CFA

Portfolio Manager

Susan Daley CFA

Associate Portfolio Manager
Contact
  • T519.880.0888
  • 1.877.517.0888
  • F519.880.9997
  • The Marsland Centre
  • 20 Erb St. W,
    Suite 506
  • Waterloo, Ontario N2L 1T2

How to Read the Market Stats (Part I)

June 25, 2013 - 0 comments

Here at the Waterloo office, we’ve received a number of questions about the Market Stat’s page that is published by PWL Capital each month. I will outline a few points to clarify this monthly data sheet.

The Basics

The market stats page shows the percentage returns of the benchmarks (or indices) of specific asset classes. They are not directly investable, but can be used to evaluate the performance of securities within each asset class.

A few notes on Returns 

The returns presented in the PWL market statistics are total returns in percentage terms (i.e. the S&P/TSX Composite earned 1.77% in the month of May). This means that these returns also include interest income and dividends earned on the securities, and not just the movements in the security prices. If you were to go to Google Finance, for example, you would only see the changes in prices.

The 1 month return gives you the return you would earn on the money that was invested at the beginning of the month, or May 1st.

The Year-to-date return shows the return since the beginning of 2013, or how much money you would earn on your investment if you invested on January 1st 2013.

The 1 year return is based on the return for each security in the last twelve months (i.e. the security return starting June 1st, 2012). For example, if you could invest $1000 in the DEX Treasury Bill Index on June 1st, 2012, you would have earned 1.02% over the past year. This means you would end up with $1,010.20 on May 31st, 2013.

The 3 year, 5 year, 10 year, 20 year, and 30 year returns are all annualized, not cumulative. What does that mean? Let’s use the DEX Treasury Bills example again. If you invested $1000 in the DEX Treasury Bills Index 30 years ago and this was a cumulative return, you would have earned 5.56% in total, or your investment would be worth $1055.60 on May 31st. That isn’t very promising. However, since they are annualized returns, this means you would have earned an average of 5.56% every year. With the effect of compounding, that would result in your $1,000 being equal to $5,069.691 today; much better than the $1055.60 total. In general, returns quoted for a period of 1 year or less are cumulative returns, and returns for periods greater than one year are annualized returns.

The 5-year standard deviation column at the right gives an average estimate for measuring the volatility of the security. It is a measure that quantifies how much the returns change from month to month, and is a proxy for risk. A lower standard deviation means lower volatility, meaning each month’s return is relatively close to the average shown.

On average, income securities have lower returns than equity. This is intuitive since income securities have lower risk (or standard deviations). In order to incentivize investors to invest their money in risky equities, companies must pay a higher return.

What do the Names Mean?

Don’t know what FSTE/NAREIT is, or what you have in your portfolio that is comparable? See the table below for a brief summary of what each of these indices are.

 

In this blog, I have explained the fundamental basics of the market stats page, which will be important for understanding future blogs that will discuss the utility of the information in the market stats.

 Notes:

1 $5069.69 = $1,000(1+5.56%)30

By: Susan Daley with 0 comments.
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