7 handy tips and warnings about using fund fact sheets

If you’re a DIY investor, you probably have a variety of sources from which you get information about any potential investment fund.

One of the most commonly cited as a useful aide to help evaluate a particular fund by many of our clients is a fund fact sheet.

These are documents that summarise information about an investment fund such as those held in a pension, so that you can decide whether the fund might be right for you.

Although there are some analysts, such as Morningstar, that do produce standard fact sheets, investment houses don’t share a common template, so they don’t all look the same.

They will differ in terms of branding, design, and layout. But they do include similar information.

Read about some of the details and data you’ll find on a standard fact sheet, as well as seven handy tips about what’s actually useful, and what you’re better off ignoring.

1. The objectives give a good high-level overview of the fund

The first piece of information you’ll come to on most fund fact sheets is the fund’s objectives.

These can provide you with a quick snapshot of the fund in question and will soon give you an idea if the fund could be right for you, or at least whether or not it’s worth doing more research.

For example, it will outline whether it’s an active or passive fund. If it’s the former, then you’ll get an idea of the benchmark the fund manager looks to either match or outperform. If it’s a passive fund, you’ll be told which index, or indexes, it tracks.

You will also be able to tell what the asset class the strategy focuses on (e.g. equities, fixed income, or multi asset), and any geographical or sector focus.

The objectives will also provide you with details about the type of fund it is – value, growth, income, and so on – so you’ll get a good idea of how it could align with your investment objectives, and the rest of your portfolio.

2. You should exercise caution when considering performance details

It’s very likely that you’ll be aware of the standard wording that’s on most investment collateral pointing out the fact that past performance is no guide to, or guarantee of, future returns.

When it comes to the performance details on a fund fact sheet, this is certainly an appropriate warning to bear in mind.

The nature of markets is that the value of companies and other assets rises and falls. This can be down to a variety of reasons, including economic performance and specific factors relating to business or market sectors.

However, what the wording ignores is one of the principles of investment. History tells us that in the long run, equities will outperform fixed-interest funds, which will in turn outperform cash. As a result, in the long term, equity investment could well provide you with returns that outperform inflation.

So, our advice is to not get too hung up on the short-term performance data you see on a fund fact sheet (anything super-impressive is possibly it’s a sign of a fad that is reaching its peak) and certainly not use it as the primary reason for choosing a certain fund.

3. The investment allocation helps you look under the bonnet of a particular fund

One thing to appreciate about investing in stock markets is how engaged you are with where your money is invested, and how familiar many of the investment holdings in a particular fund will be.

For example, a FTSE 100 tracker fund will include household names such as HSBC, Shell, and Vodafone.

Likewise, a similar fund tracking the S&P 500 will give you a stake in Microsoft, Amazon, and Apple.

Not only will you benefit from the growth in those companies, but you’ll also have value added to your holdings through dividends.

Similarly, having an idea of the geographic asset allocation can be helpful, especially when it comes to looking to spread your investments and avoid home bias.

4. The charges outlined may not tell the whole story

Fund charges are usually outlined on fund fact sheets either as the Annul Management Charge (AMC) or the Total Expense Ratio (TER). There are a few other terms also used, and to be fair it would be really helpful if the asset management industry could get together and agree upon which one to use (ideally the one that is most transparent).

The best way for you to think about charges is that they are a deduction from any growth you enjoy on your investment.

As a result, you should be conscious of the annual charges applicable on each investment fund. A passive investment, such as index tracking fund or ETF, can have an investment charges as low as 0.05% to 0.3%, while active funds will cost up to 1%, though sometimes it can go even higher than that.

The important thing about the charges on a fund fact sheet is that you may not get the whole story. Fund houses are not obliged to declare all their charges on a fact sheet, so many don’t.

This means that you may incur other charges that could really eat into your investment returns. In particular, funds that are domiciled outside the UK may not be “clean” and, as a result, could be liable to have commission deducted – something that is illegal for UK funds. Such funds could have charges of around 1% higher than their ‘clean’ share class counterparts. Therefore, it’s really important to understand which share class you end up investing in.

Find out more: Your handy guide to different investment charges

5. Total returns are more important than investment yield

The “yield” on a particular fund is often quoted on fund fact sheets. This is the income you’ll get from interest and dividends derived from the fund’s investment holdings.

Many investors, as they approach retirement, are tempted to switch to funds with a high yield to deliver retirement income.

However, this can often mean that you end up with a badly balanced portfolio, overweight in certain stocks or sectors, and totally inappropriate for your long-term financial needs.

To our mind, it’s much better for you to focus on total returns and supplement your retirement income from the total returns of your investment portfolio – capital growth and income.

So, disregard yield data on a fund fact sheet and look instead at the historic total return figures.

Find out more: 8 great investment mistakes and how you can avoid making them

6. The are a range of other details that can help your investment decision-making

It can obviously be useful to have an idea of the level of risk a fund carries, although you should be aware that different fund houses will have different ways of reporting this.

However, when it comes to risk rating, you’re much better off relying on an independent analyst using a consistent measurement across all investment funds.

You should also be aware that the overall risk of your portfolio is more important than that of an individual fund.

7. Miscellaneous fact sheet details can provide you with valuable information

Although it might not come under any particular heading, there is a variety of information you can glean from fund fact sheets that can help you ascertain the overall health of a fund and how appropriate it is for your investment purposes.

For example, if a fund is hedged and dependent on a particular market or currency, you’re likely to want this to be a strong and stable currency such as the US dollar, rather than a volatile one.

Then, while the idea of a “star” fund manager may appear attractive – especially if they have a track-record of investment success – you may want to consider that they might have simply benefited from a series of contrarian calls, and could, as a result, be badly exposed in more normal circumstances.

More important are the fund house due diligence processes, such as how investment decisions are made, and the strength of research and analytical teams behind them.

Get in touch

If you’d like to talk to us about your own investment portfolio, then please get in touch.

You can contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.