Value Added Monthly Index (VAMI)

A value added monthly index (VAMI) is a measure that tracks the monthly performance of a hypothetical investment.

The calculation for the current month's VAMI is:

Current VAMI = Previous VAMI x (1 + Current Rate of Return)

A value added monthly index charts the total return gained by an investor over a specified period of time. It includes capital gains as well as reinvestment of any dividends and additional interest earned through compounding.

A value added monthly index can be used for a variety of purposes. It may provide insight on the growth of invested capital over time. Sometimes it can be used to evaluate the performance of a fund manager. It is also helpful in comparing multiple funds and index benchmarks.

A value added monthly index can be constructed through technical software programming. It typically begins with a hypothetical investment of $1,000, however initial investment levels can vary. When using this modeling technique it is important to ensure the availability and quality of data in order to provide relevant charting, as estimated outcomes can be skewed by data quality. VAMI charts can be built in Microsoft Excel or other technical software programs. Online versions are often provided by financial services companies to help provide a graphical representation of investment values over time.

VAMI charts can be a reliable way to compare the growth of various funds and benchmarks across the market. Investors can customize these charts or choose from the options in a fund company’s family of funds. VAMI charts provide investors with a perspective on how an investment has performed over time. They may also provide insight on potential expectations with future projections. VAMI charts can also provide a visual representation of how similar funds or funds from different asset class categories have performed over a specified timeframe, with benchmark returns also included for broader analysis.

Numerous market platforms provide VAMI tools for investor analysis. These tools can allow for varying inputs such as higher initial capital values and varying durations.

Morningstar provides an example with its VAMI tool, which is part of its research offering for mutual funds. Under the chart tab, investors are provided with the hypothetical growth of an initial $10,000 investment. When researching the Vanguard 500 Index Fund for the one-year period from January 26, 2017 to January 26, 2018, the VAMI chart shows that an investor’s $10,000 investment would have increased to $12,585.