IT’S PROBABLY WORTH noting makes use of McGregor BFA’s total return calculations to determine the performance of our stock returns over a year. Comparing our performance(s) to the performance of the JSE’s All Share index is therefore not really a fair comparison – although, to be honest, the ALSI remains the best way for our writers to benchmark portfolios.
In calculating a total return for companies over any given period, it’s necessary to include all relevant corporate actions in this calculation. The following corporate actions are therefore included in the calculation: cash dividends, capitalisation issues, share consolidations, capital payments, special dividends, interest payments, scrip dividends, sub-divisions, rights offers and unbundlings. For example, Liberty International – which featured strongly in our 2010 picks – was split into two separate counters: Capital Shopping Centres and Capital & County Properties. Remgro unbundled its holding in diamond miner Trans Hex Group.
In calculating the total return, we start with 100 shares. The 100 shares are then adjusted with each corporate action on the effective day. As an example, if a dividend is declared, the dividend is reinvested on the payment day by buying
AVERAGE RETURN: additional shares. All other corporate actions are treated in a similar way by buying additional shares with the value created resulting from the corporate action.
The adjusted number of shares is then multiplied daily with the normal closing price as per the JSE, resulting in an adjusted value for the original 100 shares. Dividing that adjusted total value by 100 results in a total corporate actions adjusted price per share.
The return for each share is calculated by using the adjusted price per share as at 15 December 2009 and that of 14 December 2010. The return quantified in that way then not only represents the movement in the share price itself but also the additional value created for the shareholder by way of all relevant corporate actions.