Mutual fund companies often include a trailing total return figure on the performance results webpage for a fund. The trailing total return shows the rate of return you could have earned by holding the fund for a recent period of time, typically a year. You can use the trailing total return calculation for any type of investment, and the number can be useful if you are comparing investment choices.
Price Gains Plus Dividends
A trailing return looks at how an investment -- such as a mutual fund -- performed on a historical basis. The return consists of the change in share price over a recent period of time plus any dividends earned per share and converted to a percentage gain or loss. As an example, say a fund closed the most recent month with a share price of $11. A year earlier, the share price was $10, and over the year, the fund paid $0.50 in dividends per share. The total gain of $1.50 divided by the $10 starting share price produces a 15 percent trailing 12-month return.
The mutual fund industry has moved to widespread publishing of the trailing total return on a fund's webpages. This return is usually updated at the end of each month. The TTM may provide a better picture of recent fund results compared with the one-, three-, five- and 10-year returns that funds publish and often only update four times a year. You can use the TTM of a fund to quickly compare funds or how a fund competed against a specific stock or bond market index.
Historical Not Predictive
Keep in mind that the trailing return published by a fund or other investment is a historical result and may not be a good indicator of how the fund will perform in the future. The benefit of trailing returns is that the numbers typically cover results through the end of last month, giving you fresh data to determine whether a fund looks like a good investment choice. Future results depend on the types of investments a fund holds and how well those markets perform.
You can calculate the trailing return for any fund or stock for any time period with some easily found data. The major financial websites provide historical share price data, allowing you to look up prices for any two dates. The amount of dividends paid can be found on a stock's investor information pages, fund webpages or on the price charts published by the financial websites. After calculating the price change and dividends earned, always divide by the oldest share price of the two to get an accurate trailing return percentage.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.