How to read a fund factsheet

In this video, I'll be showing you how to read a fund factsheet so you can understand, at a glance, how your money is invested and keep on top of your pensions and investments.

This one may be better to watch with the visuals.

Transcript:

In this video, I'll be showing you how to read a fund factsheet so you can understand, at a glance, how your money is invested and keep on top of your pensions and investments.

Hi! I am Cleona, founder of Conscious Money and on this channel, I give you honest strategies around getting free and clear with money - including practical tutorials like this one, so if you are new, consider subscribing. 

I have been reading fund factsheets for over a decade and initially, I found it a little confusing. As time went on though, I developed my own methodology for scanning information and becoming quite quick and efficient at it. 

So, let’s get straight to it.

I see fund factsheets as a story of information. 

The more you eyeball these factsheets, the more you train your eyes to read this information so do persist; It gets familiar and easy with time.

Information in a fund factsheet is laid out in a standardized way so it is easy to scan once you know what you are looking for.

Check that it is a recent fund factsheet, they are usually updated quarterly, you can download them as pdf. You can find fund factsheets on Morningstar, Trustnet. My preference is Trustnet.com but it's more about familiarity and what I am used to. You can go with any format you like.

Start with the name of the fund, it usually says quite a lot.

Then, at the top of the fund factsheet, you want to read the funds investment objective and style. 

What financial goal is it trying to achieve and what style or approach to selecting investments is the fund manager taking to get there? If it has a sustainability or ESG focus or impact, what is the criteria used to screen or pick investments?

 Is it a value or growth focus? Or a blended approach with a bit of both? Is it capital gains or income? Smaller companies or larger ones? What geography does the fund focus on?  All of these things are easy to read. For bond funds, style is determined for example, by credit quality or maturities.

i was once talking to a client in a meeting about fund factsheets and she looked really confused at me...like i wasn't making any sense. She later told me that what she was hearing was fun factsheet. I wish it was. Actually it can be...it can be a lot of fun when you pick the right funds and you see the investments growing in your portfolio.

It can be fun.  It helps also to see how big the fund is which of course is quite relative. A fund of a hundred million would probably be on the smaller side and one billion plus would be fairly large. A fund can get big sometimes as big as 15 or 20 billion because it was attractive to investors but big funds can be mediocre too and can be harder to manage so big does not mean better. If you think of a boat on a river, a smaller boat is sometimes easier to steer and direct than a very large ship.

You want to also peek into what the fund holds and the way to do this is to look at several things. You want to look at the top ten holdings and number of holdings – how much of the fund is accounted for by the top ten holdings, what’s the percentage size of the top ten holdings – if fund has say 5 holdings, which comprise 30% of the entire fund, then the fund could be quite volatile. It’s not necessarily a good thing or a bad thing to have this sort of concentration; it's just important to know that a few stocks would have a big impact on the portfolio and potentially this could be more volatile.

Also, look up the companies that make up the top 10 holdings, looking at these online you can google the company's website and it will give you quite a lot of detailed information and a sense of the kind of companies that the fund invests in. 

You also want to look at sector and country breakdown when looking at equity funds. When looking at equity funds in Asia, for example, exposure can vary quite a lot from fund to fund. So, look at country breakdown, understand where the fund invests as the name will not necessarily tell the whole story. For example, an Asian equity fund or an Emerging Market fund might actually be quite similar and maybe include a lot of exposure to geographies like China and India and maybe even have similar holdings.

So you do need to pay attention to the duplication that might happen between funds if you're picking a few different funds and if you're wondering what is this fantastic plant in the background..these are pea shoots- when i'm hungry, I just reach behind and no i'm just kidding! The light is really good in my office and so i have um i grow pea shoots in those and it's a really good thing to grow if you're into growing plants. 

You also want to look into the composition of asset classes. Asset classes are things like equities or cash, fixed interest, property, commodities. Usually a global fund will be predominantly equity based and a bond fund will predominantly be fixed interest but it's worth noting. 

You also want to note the launch date. Is it a new fund? If it's launched in less than three years and you don't have a track record, what was the fund manager's track record at the previous fund or fund house and then you also want to pay attention to performance and the track record. How has the fund performed versus peers,quartile rankings etc and versus benchmark. You want to see some consistency in performance and that old disclaimer of course - the past is no guarantee of the future. 

The fund's quartile ranking is easy to scan on the funds factsheet. So, if a fund is first quartile it's in the top 25 percentile of funds in the sector for performance and if it is in the fourth quartile it's in the bottom 25 percent of funds in the sector for performance. 

Again quartile threes or fours are not all bad but you do want to notice how the fund performs against the sector and the relevant benchmark. Key investor information document is another document that is useful to check out some facts related to the fund like risk/reward, investment objective, the fund fees etc. 

Look at the ocf or ongoing charges figure as it's a more accurate figure for costs. The ongoing charges figure includes the annual management charges and other costs included in the running expenses of the fund including regulation and marketing. 

I hope you got some value out of this video. if you did, hit the like button for me and hope to see you again in the next video. 

Thank you for listening.