How to measure ETF performance

Article Excerpt

There are several ways to gauge the performance of an ETF, among them is a look at the fund’s total return. This method calculates capital appreciation (or decline) and adds any other income such as dividends. First, capital appreciation is measured using the price gain or loss of the ETF over the holding period. That can be as short as one day or as long as 10 or 20 years. The income received by the investor is the second component of the total-return calculation. That income is then added to the capital appreciation, or loss, of the ETF. When investors receive the payout from the ETF, we assume that they invest it back into the ETF or leave it in an interest-paying savings account. This additional income is also added to the capital gain and the income to determine the investment’s total return. When comparing the total return of various ETFs, investors need to remember that the level of risk…