Cumulative return vs. benchmark

[iregula]

Say you have a 5 year CUMULATIVE return of Fund A of 85%. The S&P’s 5 year cumulative return was 105%.
To compare the difference of the 5-year cumulative returns, can you just subtract the two #’s = 20%?

 

[S2000magician]

Why not?

 

[Destroyer of Worlds]

Agree with S2000. There’s no reason you can’t.
Only thing I would add is that there is no problem because you are comparing apples with apples. With your stated returns, a dollar invested in Fund A is worth $1.85 at the end of 5 years; while a dollar invested in the S&P is worth $2.05. So you are essentially comparing the terminal value effects at the end of year 5. To see that this difference equals 20%, subtract the values and divide by the starting value, $1.00, i.e.:
(2.05-1.85)/1 = 0.20, or 20%.
One more thing is I would suggest picking a different fund with that piss poor return.

 

[iregula]

Yeah so i know for annualized returns, one can say ok Fund A had annualized return of 10%, S&P had 15%, so the delta is 5%.
For cumulative returns over 5 years, i wasn’t sure if it made intuitive sense to subtract the two as well. Destroyer had a good example that seemed to make sense