One of the problems with using a wide range of ETFs and CEFs to calculate daily category return is that some ETFs and many CEFs are not very liquid, trading very few dollars in a day. The less liquid these funds are, the more likely they are to deviate away from the “true” underlying value, resulting in returns that are frequently higher and lower than the real market category under the microscope.

    To combat this, I've introduced dollar-weighted calculations. This process works in the following way:

• For each fund, calculate the total number of dollars traded over the time interval, that is, the sum of the closing price times the volume for each day.

• Calculate the sum of all dollars traded over the time interval in the entire category.

• For each fund, calculate a weight based on its percentage of dollars traded relative to the entire category.

• The final category return is the sum of the product of each fund's weight and actual return.

   

This gives us a number that more accurately represents what the actual dollar-driven return on the category was. Here's the current results: