Morningstar Adds Dollar-Weighted Returns Data

Morningstar has started adding a new metric to mutual fund ratings that can more accurately depict the fund returns collected by investors. What does this mean for you as an investor? A dollar-weighted return measures a fund’s average annual returns by estimating the collective earnings of all investors in a fund. This is accomplished by including in the calculations the flow of capital in and out of a fund

This is different from the typical total return numbers which are simply time-weighted, which provide an investor an idea of what they would have earned if they had purchased a fund and held it, reinvesting all dividends over a period of time.

“Investors know they should hold diversified portfolios, but many chase past performance and end up buying funds too late or selling too soon,” says Don Phillips, Morningstar’s managing director. “For example, if most investors bought a fund at a high point and sold in a trough, that fund’s investor return would be lower than its total return.”

I think this will be a great addition to Morningstar’s already outstanding data on mutual funds. Any data that can provide a more realistic picture on performance will undoubtedly help investors.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.


Good question, and I think I have the answer. I was able to find a factsheet PDF on exactly what the new Morningstar investor return is, how it works, and how it can help an investor.

In summary though, it is a measure of how all of the investors in the fund did on average. This is different from a straight total return because investors typically make many transactions over the course of time, with systematic buys or sells, etc.

Morningstar Investor Return factsheet


So, what will this, dollar-weighted, number tell me? Tat most investors did not earn the 'average'?

It sounds like an interesting concept. I just can't figure out how it can be useful.

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