This case goes back to the year the 2005. Value Trust was an $11.2 billion mutual fund in the middle of that year and had outperformed for the Standard & Poor’s 500 Index for 14 consecutive years. The fund was managed by William H. Miller III. During those 14 years, the fund experienced an average annual return of 14.6%. This return outperformed the S & P 500 by 3.67% per year. Morningstar claimed the Value Trust mutual fund fell behind the S & P 500 in 32 12-month periods out of 152 12-month periods during the 14 year time span of consistently outperforming its benchmark index. Investment performance can be measured in many different ways. Tracking the investment’s return is a simple way of measuring investment performance. No investments are the same; therefore, each investment’s objectives may be trying to achieve different goals. Some investments are aimed to establish long-term growth, while others try to achieve short-term current income, and some are a combination of the two. When considering measuring mutual fund, or any portfolio, performance, it is important to understand the Annual Total Return of the investment. This is computed as the increase or decrease in net asset value plus the fund’s income distributions given as a percentage of the fund’s NAV at the beginning of the investment period. Once the annual total return is established, this can be compared to a benchmark index. There are different benchmarks to use for different investments. Commonly used benchmarks for measuring US stock returns are the Wilshire 5000 Index for the broad market, the S&P 500 Composite Index for large capitalization stocks, and the Russell 2000 Index for small stocks. In the Value Trust mutual fund case, the most commonly used approaches for measuring performance was the percentage of the annual growth rate of the NAV assuming reinvestment (total return on investment) and the absolute dollar value today of an investment made at some...
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