Total return performance
Performance data can be calculated with income reinvested, this is defined as total return meaning that any income received through dividends is reinvested into the shares of the company on the day the shares where quoted ex dividend i.e. the day the dividends were declared and not the day they are paid. The total return will then be the gain (or loss) in the value of the shares held at the start of the period divided by the value of the enlarged holding at the end of the period.
Whether to look at capital performance only or total return performance is an issue to consider. For capital only performance, the performance of high yielding funds will be understated and low yielding funds will be overstated when a comparison between the two is made. Total return performance is somewhat artificial but a measure that allows a performance comparison undistorted by the level of yield on the investment. Total return figures can be worked out on share price - in which case it is assumed that new shares are bought at the market price, or at NAV, in which case new shares are assumed to have been acquired at NAV. In practice investors are unlikely to reinvest the exact amount of their dividend back into a company as soon as they receive it (and certainly not on the ex dividend date as they will not have received it by then), even if they did there would be costs of reinvestment involved. Total return performance is not therefore a return that shareholders actually experience but is a valuable tool to measure relative performance against an index or other funds without distortions from differing yield levels.
See share price total return performance or NAV total return performance.
