Question to those proficient in using Simba's spreadsheet to compare portfolios: the instructions page mentions that if you want to add the returns for a new fund the expense ratio also needs to be added. I wonder if the calculations involve subtracting of the expense ratio from the annual returns or the expense ratio is added just for informational purposes.
Someone asked this question on BH forum and the answer was that annual returns for Vanguard funds already are adjusted, but for non-Vanguard funds the expense ratio adjustment is made by the formula. But I thought it was a standard practice that annual total returns reported on Yahoo or elsewhere were already ER-adjusted... otherwise the portfolio comparison sheet might show incorrect results for non-Vanguard funds.
I wish I were wrong... if someone could shed some light that would be great.
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
Clive wrote:
If you look in the data worksheets in Simba's spreadsheet - for example 'DATA_72_11', the third row shows the Expense Ratio value (labelled ER). The calculation for each year's total gain deducts that value i.e. the yearly gain figures are entered into rows something like 69 onwards and the values in rows 8 onwards are that 69 row onwards value minus the row 3 value. Those row 8 onwards values are then used elsewhere in the spreadsheet to calculate portfolio's gains, show charts etc.
It turned out the README tab of the spreadsheet included an explanation of how the expense ratio is handled:
6. If you have returns for the Fund from inception then there is no ER deduction but if you are using synthetic returns then the ER is deducted from the returns. If you want no ER to be deducted, then enter an ER of 0 in cell AQ3
Based on the formula for the adjusted returns in the rows 8-51 the ER is only deducted if the first year of the available performance data entered is equal or later than the fund inception year. I entered data for a couple of additional funds to the rows 69+ and verified that no ER were deducted in the upper part of the table.
Clive wrote:
Most funds seem to run on the basis that trading etc costs are deducted directly out of the fund and additionally a management fee (that's usually taken out of dividends/income) is charged on top of that. Such that generally the yahoo price might include those trading costs, but not the management fee cost (which accordingly has to be entered into row 3 in Simba's spreadsheet).
It looks like you are talking about the daily NAV value, not the annual returns. I compared Annual Total Return data on Yahoo for a couple of S&P500 index funds, one of which has higher ER and year after year the difference in returns pretty much equals the difference in ERs. Which tells me that Yahoo shows post-ER returns.
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
