Do you feel that stock picking is not for you? Maybe you should consider investing in ETFs or Unit Trusts.
In this post you will learn how to do your own research… how to read a fact sheet. Please bare in mind that this post is for both ETFs and Unit trusts.
A fund fact sheet or minimum disclosure document (MDD) is a document about a unit trust fund offered by an investment company which is regulated and monitored by the Financial Sector Conduct Authority (FSCA). The requirements for MDDs are as outlined in Board Notice 92 of 2014. Every investor needs to read an MDD before they invest and it is important that they understand the content thereof. This document is a guideline to understanding your MDD.
Legislation requires that all unit trusts produce a minimum disclosure document (MDD), which in many cases is called a factsheet. This document details how the unit trust operates, its performance, its risk profile and the costs associated with it. You can use factsheets to get more insights into the unit trusts you are considering and to compare their characteristics. This should help you make more informed investment decisions.
Information provided here does not constitute as financial advice it can only be used for educational purposes.
This is what you will learn in a fact sheet:
A fact sheet gives you a snapshot of what an ETF or Unit Trust.
Each of the sections on the factsheet builds a picture of the personality of the unit trust. Using this, you can compare unit trusts and make decisions based on comparable facts.
Here’s a breakdown of the fact sheet:
FUND INFORMATION
The information captured under Fund Information provides the summary details of the fund to help determine if it is suited to the investor and their financial goals.
OBJECTIVE
This section lays out the definition of success for a unit trust or ETF, by stating its goal and benchmark. A unit trust measures its success in achieving its goal by comparing its return to that of a benchmark.
This explains what the fund is attempting to achieve with the asset exposure it refers to, guided by the investment mandate of the fund.
It provides a brief description of the characteristics of the fund (term, risk/volatility expectation, risk to capital or type of asset exposures). In this way the investor can determine whether the fund is appropriate for them or not.
BENCHMARK
The fund benchmark provides a measure against which the performance of the fund can be assessed over the minimum recommended investment period or longer. Typically, a fund is benchmarked against either an index, inflation or its category average.
When appraising a unit trust you should look at whether its benchmark is appropriate, as it may be used to determine the fees charged by the unit trust. If it charges performance fees, a unit trust with a lower benchmark than that of others in the same category may cost more as it more easily collects fees when it clears that benchmark.
Note: ETFs do not charge performance fee unlike Unit trust.
RISK PROFILE
The risk profile will give you an indication of the potential risk of losing capital. Funds with a higher risk are likely to go through greater variance of high and low returns than those with a lower risk. Over the long term, however, short-term risk is mitigated and the funds have the potential to achieve higher returns. Each investment company has their own risk profiling system.
Note: These risk profiles are a mere guide based on the holdings/exposures of each fund and what it is designed to achieve. The risk profile does not take the impact of exchange rate fluctuations into account that are associated with our offshore funds.
Equity unit trusts will usually be the most risky, followed by balanced (high and medium equity multi-asset) unit trusts, low equity unit trusts and then money market unit trusts.
If you, as the investor, cannot handle the ups and downs of being in the unit trust you choose, you could find yourself selling your investments at exactly the wrong time, just after a period of losses and before a period of recovery.
FUND MANAGER(S)
Take a look at who manages the fund together with the specialist boutique, a capability within the investment business. More detailed information about the managers is provided in a separate section called Fund Manager Information.
LAUNCH DATE
The launch date is the inception date of the fund – this may or may not be the date from which the current fund managers started managing the fund. The management company can provide the history of the fund managers who managed the fund over time.
This will help you determine how long the fund has been around compared to it’s competitors.
SIZE OF FUND
Size of a fund can influence a fund manager’s trading flexibility, cost of managing assets, liquidity of underlying assets, etc.
It gives you an idea of how big the fund is and how well managed it is.
DISTRIBUTION
The distributions (dividends, interest) may be paid out or reinvested at the choice of the investor. The amount of the distribution depends on the assets held within the fund and the frequency is based on the fund type and objective. For example, income funds have a more regular distribution whereas equity funds may distribute less frequently, i.e. annually or semi-annually.
PRINCIPAL HOLDINGS
Shows the 10 largest holdings (shares, bonds, etc) in the fund at the end of the last quarter. The table will show the name as well as the size of the holding (as a percentage of the total fund size). In some cases the top 10 holdings may be a significant portion of the fund, and may provide a further indicator of risk i.e. high concentration (high weighting) or diversified (lower weighting) spread of assets held within the fund. Usually the top 10 do not change significantly unless there is a major market move or repositioning of the fund.
ASSET ALLOCATION
The fund shows how the fund’s assets are allocated to the different asset classes at a point in time. The composition breakdown offers investors insight into the portfolio’s investment strategy, diversification and potential asset risks
FEES FOR THE FUND
Look at the total expenses of the fund. Total Expenses are made up of these costs:
1. Total Expense Ratio (TER): TER is the global standard used to measure the impact that the deduction of management and operating costs has on a fund’s value. It gives you an indication of the effects these costs have on the growth of your investment portfolio.
Expressed as a percentage, a fund’s TER is calculated over a rolling three-year period and annualised to the most recent quarter-end. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. Also, the current TER may not necessarily be an accurate indication of future TERs.
2. Transaction Cost (TC): TC is a necessary cost in administering the fund and impacts fund returns. It should not be considered in isolation as returns may be impacted by many other factors over time including market returns, the type of fund, the investment decisions of the investment manager and the TER.
Unit trusts charge either a fixed percentage of the fund (a fixed fee) or a variable percentage based on performance (a performance fee). The factsheet will show the basis for calculating the fee and the average annual total fees and expenses in the fund over the last three years (the total expense ratio).
Just like anything you buy, you should aim to get value for money with fees, so a unit trust that charges fees above the average of its peers should also deliver above-average returns. Since performance is easy to measure, you would expect that more expensive unit trusts would always be better than cheaper ones, but that is not the case.
Some cheaper unit trusts are very good value for money, and some expensive ones are very poor value for money. Well-designed performance fees can help to make sure that you only pay a high fee if the unit trust performs well.
PERFORMANCE ANALYSIS
A performance (ANNUALISED) table shows how the fund has performed relative to its benchmark over
1, 3, 5, 7 and 10 years, and since inception. All the figures are expressed as an annual rate (annualised). Included are the performances of the fund classes which effect different return outcomes due to the fee structure differences – institutional, retail investors and Linked Investment Services Providers (LISPs).
It is meaningful to look at the return the fund achieved over its recommended investment term, and not to focus on the short-term performance fluctuations. Remember that past performance is not an indication of how the fund will perform in the future.
On every factsheet, somewhere in the fine print, you will have language saying something to this effect: ‘Past performance is not necessarily a guide to future performance’. With this warning in mind, it is important to tread carefully when using performance as an indicator – especially when it is used in isolation. Read the performance figures alongside the investment philosophy and the risk numbers to get a clearer picture of how the unit trust operates.
Having said that, over long periods, good performance is more likely to be an indicator of a good manager and is unlikely to be the result of pure luck. Short-term returns (less than three years) can vary widely and are often meaningless when it comes to selecting a unit trust, but long-term returns can show a skillful manager.
This is what a fact sheet will never tell you
Although some factsheets may include a ‘Who this is suitable for’ section, no factsheet can tell you whether a unit trust fits into your broader portfolio and whether it matches your personal goals. If you need help to link your needs as an individual and the financial tools available to you, you would probably benefit from independent financial advice.
A factsheet is a good summary that can help you find out about a unit trust, but it cannot replace professional financial advice that speaks to your unique situation.
Places you can find fact sheets
Factsheets are available online on the provider’s website, EasyETfs or etfSA in a PDF format and are updated by managers.
A factsheet is a good summary that can help you find out about a unit trust or a ETF, but it cannot replace professional financial advice.
I do not provide professional advice however, I can coach or have a session with you about investing, budget, saving and etc. To book an appointment you can send a Dm to moneyunscripted (Instagram) or send an e-mail to: support@moneyunscripted.com
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