Standard Deviation

Standard deviation is a statistical measure of the range of a fund's performance. When a fund has a high standard deviation, its range of performance has been very wide, indicating that there is a greater potential for volatility. The standard deviation figure provided here is an annualized statistic based on 36 monthly returns. By definition, approximately 68% of the time, the total returns of any given fund are expected to differ from its mean total return by no more than plus or minus the standard deviation figure. Ninety-five percent of the time, a fund's total returns should be within a range of plus or minus two times the standard deviation from its mean. These ranges assume that a fund's returns fall in a typical bell-shaped distribution.

In any case, the greater the standard deviation, the greater the fund's volatility. For example, an investor can compare two funds with the same average monthly return of 5%, but with different standard deviations. The first fund has a standard deviation of 2.0, which means that its range of returns for the past 36 months has typically remained between 1% and 9%. On the other hand, assume that the second fund has a standard deviation of 4.0 for the same period. This higher deviation indicates that this fund has experienced returns fluctuating between minus 3% and 13%. With the second fund, an investor might expect greater volatility.

Mean

The mean represents the annualized average monthly return from which the standard deviation is calculated. The mean is not exactly the same as the annualized trailing, three-year return figure for the same year. (Technically, the mean is an annualized arithmetic average while the total return figure is an annualized geometric average.)

Sharpe Ratio

Our Sharpe ratio is based on a risk-adjusted measure developed by Nobel Laureate William Sharpe. It is calculated using standard deviation and excess return to determine reward per unit of risk. First, the average monthly return of the 90-day Treasury bill (over a 36-month period) is subtracted from the fund's average monthly return. The difference in total return represents the fund's excess return beyond that of the 90-day Treasury bill, a risk-free investment. An arithmetic annualized excess return is then calculated by multiplying this monthly return by 12. To show a relationship between excess return and risk, this number is then divided by the standard deviation of the fund's annualized excess returns. The higher the Sharpe ratio, the better the fund's historical risk-adjusted performance.

Bear Market Decile Rank

This statistic enables investors to gauge a fund's performance during a bear market. As a standard measure, Morningstar compares all equity funds against the S&P 500 index and all fixed-income funds against the Lehman Brothers Aggregate Index . We add together a fund's performance during each bear-market month over the past five years to reach a cumulative bear-market return. Based on these returns, equity funds are compared with other equity funds and bond funds are compared with other bond funds. They are then assigned a decile ranking where the 10% of funds with the worst performance receive a ranking of 10, and the 10% of funds with the best performance receive a ranking of 1. Because Morningstar employs the trailing five-year time period for this statistic, only funds with five years of history are given a bear-market decile ranking.