Correct index to compare student portfolio returns to?
Hi all,
I'm involved with a student run portfolio at my university. The portfolio is made of 30 equities in the S&P 500 and we currently compare our return to the S&P 500 price. However, there is controversy as to whether this is the correct measurement of performance. The argument is whether we should compare the index to the S&P total return index rather than just the S&P 500 price. The reason being is that we then include dividend returns into our portfolio value which overstates performance when indexed with the regular S&P price index. Our academic advisor says that this is incorrect and we must continue to compare the portfolio to the S&P price, not total return.
Any thoughts/advice on this is greatly appreciated.
bump
Yes you have to compare your results against the benchmark's total return index, which includes dividends. The div yield on the SPX is just over 2% so you've been overstating your returns by 2-3% p.a. based upon what you've described.
Total return on the index, as most likely the companies on ur portfolio pay a dividend.
Total return.
If you're reporting Total Return(TR), but only benching to the index's Price Return(PR), you're cheating. Any firm that complies to GIPS standards or the CFAi would run you out of town on a rail.
Without a doubt, Total Return. I have never seen a fund compare to the Price index.
It'd be a neat trick. Could you imagine, starting with a 2% per year built in advantage? Everybody would outperform, and my job of explaining how we perform would be so much easier! (I'm a Product Manager)
Yes, everyone would outperform for the first week until somebody notices that everyone outperforms, which is a mathematical impossibility.
Total return.
Edit - scrolled up and found it pretty funny people responded exactly the same way I did
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