I recently made a small investment into a mutual fund operated in Luxembourg with net return index that has consistently outperformed its index in 1 year, 3 year and 5 year timescales (the fund started in 2011 so no 10 year timescale is there), after an investment advisor found out that I had no investments in emerging markets. The exact index is "MSCI Emerging Markets Net Return Index".

My question is, does this particular index include dividends? If not, that might explain the consistent outperformance of the fund in comparison with the index.

I understand there's also a gross return version of the index. How does a net return index differ from a gross return index that this particular fund doesn't use as its index?

  • 2
    While your question is valid, I highly recommend that you never buy anything again without understanding it yourself [this is different than nodding your head when your investor explains something to you]. In this case, you say you made the investment on the basis of performance, without apparently fully understanding what that performance actually meant. Nothing to be ashamed of, it's always rough starting out investing, but this is maybe a good warning sign that you should slow down on other new opportunities that may come up. Ask questions first, buy later. – Grade 'Eh' Bacon Oct 3 '17 at 18:17
  • I'd also be very cautious about buying things just because they outperformed some benchmark. An overpriced fund would also appear to have outperformed that benchmark, when it's really just ready for a correction... – Joe Oct 3 '17 at 19:08

A Net Return Index includes reinvesting the after tax dividends.

A Gross Return Index (also called a "total return" index) includes reinvesting the before tax dividends.

So a Net Return index should outperform a non-dividend-reinvesting index, but should underperform a "total return" index.

  • Do either of these reinvestment methods create taxable income events? – Xalorous Oct 3 '17 at 20:22

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