Comparing Performance and Checking Dividends—Why S&P 500 and Mutual Fund Figures Differ

Are the figures in the news different from your own investment performance?

“The news says the S&P 500 hasn’t risen much, but my mutual fund is up.” In such cases, it might be a bit premature to immediately conclude that the product is performing well.

To compare performance, you first need to align how the figures are calculated. A common oversight is whether or not dividends paid by companies are included. If you compare figures based solely on price movements with figures that include dividends, you will get different results even when looking at the same market.

Before changing your investment plan, check the conditions of the comparison. Just doing that can reduce the number of times you get swayed by the numbers.

“Including dividends” means figures that include more than just price movements

Investment results for stocks include not only changes in stock prices but also dividends received while holding the stock.

According to S&P’s official explanation, the S&P 500 commonly cited in financial news is a price-based index that does not include dividends. On the other hand, the total return index (including dividends) is calculated assuming that dividends are reinvested.S&P Official Explanation

In other words, even if the explanation that it “tracks the S&P 500” is the same, the story changes depending on whether the figures used for comparison include dividends.

For example, for the sake of explanation, consider a case where a stock bought for 100 yen becomes 103 yen at the end of the period, and a 2 yen dividend is also received at the end of the period. Ignoring taxes and fees, the capital gain is 3 yen, and the investment result including the dividend is 5 yen.

This is a hypothetical scenario to understand the mechanism and does not replicate actual index calculations. Also, dividends are not a “bonus” added unconditionally to profits; there is also an impact on stock prices associated with dividend payouts.

Even if dividends are included, it does not necessarily mean cash will arrive in your account

Here, we want to distinguish between “corporate dividends” and “mutual fund distributions.”

Receiving dividends from stocks held by a mutual fund and distributing that money to investors are two different things. Since money may be reinvested within the fund, just because the comparison target includes dividends does not mean that cash will be regularly deposited into your account.

When checking mutual funds that track the All Country World Index (ACWI), S&P 500, or NASDAQ 100, be sure to read the “Investment Policy” and “Distribution Policy” in the prospectus separately.

It is important not to judge that the effect of receiving corporate dividends is absent just because there are no distributions.

Conditions to align before comparing

Even if you understand how dividends are handled, that is not the end of the preparation for comparison. Check the following conditions as well.

・Period: Are you comparing the same start and end dates? ・Currency: Are you mixing US dollar-denominated figures with yen-converted figures? ・Taxes: How are taxes on dividends handled in the calculation? ・Costs: Are you distinguishing between index figures and mutual fund figures that bear trust fees, etc.?

The Japan Exchange Group’s explanation also distinguishes between including dividends and including dividends after tax, which is calculated by deducting taxes on dividends. Just because it says “including dividends” does not mean all conditions are the same.Japan Exchange Group Glossary

Furthermore, the profit/loss ratio for those who invest monthly is also influenced by the timing and amount of purchases. Even if the fluctuation rate of the mutual fund itself over a certain period does not match the profit/loss ratio of your own account, that alone does not mean it is abnormal.

Before checking performance for “wins” or “losses”

Total return indices are useful for seeing market results that include dividends. However, indices are theoretical calculations. With the actual mutual funds you buy, there are costs and operational factors involved, so the same performance is not guaranteed.

When checking, one method is to use the benchmark listed in documents like the investment report for that mutual fund. Furthermore, check the official name of the benchmark and the notes to confirm the conditions regarding dividends and currency.

If the numbers differ, do not trade immediately; instead, look for “what the figures include.” As a beginner, it is more important to get used to reading these figures than to evaluate minor differences.

When deciding whether to continue your savings plan, do not forget to consider not just performance, but also portfolio concentration, downside risk, costs, and whether the amount is manageable for your household budget. Even with dividends, it is possible to lose your principal.

Key Points

・Performance figures for indices and mutual funds change depending on whether they include dividends
・Corporate dividends and distributions received from mutual funds are different things
・Compare only after confirming the conditions for period, currency, taxes, and costs

※This article provides general information and is not individual investment advice.

#AssetManagement #SavingsInvestment #InvestmentBeginner #MutualFunds #SP500