How to check index fund against index?

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ringyFinance
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How to check index fund against index?

Post by ringyFinance » 01 Jan 2017 23:01

Just to get a warm fuzzy feeling of my understanding of the available data for an index fund, I thought it would be simple to check that the return figures was the same as the "returns" for the index itself, minus the MER [++]. My test was to compare the following two index funds with the index that they track:

* CIBC Canadian Bond Index: http://quote.morningstar.ca/quicktakes/ ... F0CAN05MHH

* CIBC Canadian Bond Index Premium Class: http://quote.morningstar.ca/QuickTakes/ ... F00000NE33

The index is the FTSE TMX Canada Universe Bond Index. From web searching, I believe that it is the first index at: http://www.ftse.com/products/FTSETMX/Home/Indices

There is no trailing data like in the Morningstar pages for the funds, e.g., effective rates of return for 1, 3, 5, and 10 years. If I click on "View graph", however, I see three graphs. Nothing quite as simple as "annualized returns" or Morningstar's cumulative growth of a hypothetical $10K staring pot. Can anyone shed some light on how to interpret these graphs?

* Would "Yield" refer to calendar year returns?

* What is the "Modified Duration" graph?

* And would the "Index Level / Total Return" simply be the value of all bonds represented by the index?

* Would I be right in assuming that this differs from MorningStar's $10K growth curve, since the latter assumes reinvesting returns?

* Given that the data is in graphical rather than tabular form, is there actually any quick and dirty way to check that the annualized returns of the CIBC index funds track this index, minus the MERs?

Thanks.

[++] ASIDE: I put "returns" above in quotes because I haven't (nor do I plan to) plumb the depths of how a bond index is formulated, considering that that bonds are constantly being issued. For giggles, I browsed around and found one method at http://www.ftse.com/products/FTSETMX/Home/Methodologies (Appendix B of the document enitled "Universe Bond Index Series"). That's what convinced me that such a foray was too much of a detour. This, and the fact that it's hard to imagine what a "return" means in the context of bond index fund. I suppose that its meaning might be similar to that of "return" for an equity fund index, i.e., based on a hypthetical zero-MER fund consisting of representative companies, with returns used to buy more shares in a manner that maintains the proportions of the companies in the fund.

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