Value Added Monthly Index (VAMI)

Key takeaways
* VAMI shows how a hypothetical investment grows over time, assuming monthly reinvestment of returns and compounding.
* It is calculated using net monthly returns (after fees), making it a practical measure of investor-facing performance.
* VAMI is commonly used to compare funds, evaluate managers, and visualize long-term growth.

What is VAMI?

A Value Added Monthly Index (VAMI) tracks the total return an investor would have realized on a hypothetical initial investment (commonly $1,000) over time, assuming all distributions (dividends, interest) are reinvested. VAMI reflects capital gains plus the effect of compounding and is calculated using net returns—i.e., returns after management, incentive, brokerage, and other applicable fees.

How VAMI is calculated

VAMI is built month by month using net monthly returns:

• First month: VAMI1 = Initial Investment × (1 + Net Return1)
  (e.g., VAMI1 = 1,000 × (1 + r1))
• Subsequent months: VAMIt = VAMIt‑1 × (1 + Nett)

Because each month compounds on the previous month’s value, VAMI illustrates cumulative growth over any chosen period.

Uses of VAMI

• Performance visualization: Shows how a fixed investment would have grown, making returns intuitive for investors.
• Fund comparison: Charts allow side‑by‑side comparison of different funds or asset classes and their respective benchmarks.
• Manager evaluation: Helps assess a fund manager’s historical ability to grow investor capital after fees.
• Projection and decision support: While historical VAMI is not a forecast, it provides context for past performance patterns.

Building and using VAMI tools

VAMI charts are available on many financial platforms and can be constructed in spreadsheet software (e.g., Excel) or with programming tools. Common features include changing the initial investment amount and adjusting the date range. Key considerations when building or using VAMI:

• Start value: Many providers use $1,000 by convention, though some use amounts like $10,000—results scale linearly.
• Data quality: Accurate net return data and consistent handling of distributions are essential; poor data skews outcomes.
• Time horizon: Longer horizons better show compounding effects and drawdown/recovery characteristics.

Example

Some research platforms illustrate VAMI with different starting amounts. For example, a VAMI chart might show a hypothetical $10,000 investment in a large-cap index fund rising to more than $12,500 over a one‑year period—demonstrating the visual and numeric clarity VAMI provides.

Conclusion

VAMI is a straightforward, investor‑centric metric that converts monthly net returns into a cumulative dollar‑value path for a hypothetical investment. Its simplicity and focus on net, reinvested returns make it a useful tool for comparing funds, visualizing growth, and assessing historical performance after fees.