4Why will compounded daily returns not always match monthly or custom returns?
The current methodology for calculating MTD, QTD, custom performance, and monthly (other) returns is such that we take the monthly dividend rate supplied to us by a mutual fund company and apply that monthly rate to calendar month change in NAV - assuming reinvestment and no liquidation. For daily accrual funds, it is sometimes the case that the mutual fund company will report a monthly dividend rate that is accrued over a period of 30 days spanning two months. For example in January, Fund A reports $.05 on Jan. 15. This $.05 represents 30 days worth of daily accrual rates, but 15 of those days used are from December. We will use only this $.05 when computing our other returns. When trying to match the compounded daily return to the other returns for funds of this kind (Fund A), it is possible that the two values will differ as they contain different subsets of the fund�s daily dividends.
4Why are there small basis point differences when footing daily returns to monthly returns?
Morningstar collects dividends as of the dividend ex-date on a monthly basis. For daily accrual funds, fund companies send the total ex-dividend either on the last day of the month or some time mid month. If the dividend is sent mid month, it is likely that the total monthly rate is the sum of daily rates spanning portions of two months (plus interest). Morningstar only uses the monthly rate reported by a fund company within a given month to calculate the calendar month return. Therefore, compounding daily returns over a calendar month and comparing the calculation to the Morningstar monthly return calculation will not always yield concurrent results.
4Why do I see large basis point (15+) difference when footing daily returns to monthly returns?
Fund Liquidations: for funds that liquidate, there is no month-end return. The daily returns will not foot to the monthly return, as that fund will have no monthly returns. Funds that liquidate will not appear in the monthly returns files.
Fund Mergers: For funds that merge, there is no month-end return. The daily returns will not foot to the monthly return, as that fund will have no monthly returns. Funds that merge will not appear in the monthly returns files.
Non-NASDAQ Funds: Funds that do not report through NASDAQ will have no daily returns to compound. Morningstar will calculate the monthly return using month-end data.
Newly Active Funds: Newly activated funds may show partial data in the bi-monthly corrections and daily files. By back-filling the necessary data while activating a fund in the Morningstar database, we will be able to calculate a monthly return, however, if the fund was not active for the first 10 days of the month, it�s returns will not appear in the daily files or the first 10 days of the bi-monthly files.
Funds Missing NAVS: Funds may be missing NAVs for several reasons. First, funds drop on and off of the NASDAQ exchange due to minimum asset levels. Second, fund companies may not report a daily NAV to NASDAQ. When a fund has no NAV, and therefore no daily return during a month, this will cause a discrepancy in footing the compounded daily returns to the monthly returns.
Fund Missing Monthly Distributions: Fund may have not reported a monthly distribution to Morningstar or NASDAQ. If that is the case, the monthly return will not take the distribution into consideration.