Expressed as a percentage, this figure is calculated by taking the change in accumulation unit value (AUV) during the period and dividing by the starting AUV. Morningstar lists total returns using AUVs rather than net asset values (NAVs) because the AUV more accurately reflects the actual returns passed on to an investor. AUV takes into account a subaccount’s fund expense ratio and all insurance expenses.
Benefits
Total returns for periods longer than one year are expressed in terms of compounded average annual returns (also known as geometric total returns), affording a clearer picture of subaccount performance than a simple average. A subaccount with a 100% total return for a five-year period, for example, has a 14.9% return when annualized, whereas the simple average return would be 20%. (100% divided by 5 years = 20%)
Origin
Morningstar generates total-return figures in-house.
For the Pros
Morningstar determines total returns by calculating the increase in the AUV over that period, including the reinvestment of distributions.