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How to Understand Your Fund Fact Sheet

20 September 2022

Intimidated by your fund fact sheet? No need! To broaden your financial education and take advantage of investment opportunities, start by understanding your fund fact sheet a bit better using this guide.

How Can Your Fund Fact Sheet Add Value?

Governed by regulation, a fund fact sheet – or minimum disclosure document as it’s commonly known – is a document that all fund managers who offer unit trusts or collective investments are obligated to provide. “It contains a minimum set of facts [about a fund] that you can use to make an informed decision before investing,” explains the Glacier Research team.

As you build your portfolio, a fund fact sheet can also be used to draw comparisons between your different funds; it follows a formula, allowing you to make like-for-like comparisons across different funds and fund managers.

Fully understanding a fund fact sheet is key to unlocking the rewards of a well-selected fund. Besides knowing exactly where your capital is going and who will be managing it, with a fund fact sheet you can be an active participant in investment decisions with your financial adviser. You’ll also be better positioned to ask the right questions, and be able to make fair comparisons to other funds available, like the wide range available on Glacier’s investment platform. Plus, your financial adviser has the support of the research team at Glacier, who can provide more information about a fund that isn’t necessarily included on its fact sheet.

To help you get started, we’ve decoded key features of a fund fact sheet for you.

#1: Fund objective

“This is what the fund manager has set out to do by investing in a range of assets,” says Glacier Research. This part of a fund fact sheet details how much asset class exposure the fund has, what it aims to achieve against a certain benchmark, how the fund manager plans to do this, and the qualities of the ideal investor. It also summarises much of the information you’ll find in the rest of the document, such as the ideal investment time frame, the underlying investment asset classes (including equity exposure, i.e., risk), performance metrics, and local or offshore exposure of the fund.

A fund can also have a dual objective. “For example, multi-asset funds normally target growth and income, prioritising one, depending on the fund manager’s mandate,” says Glacier Research. “Then, as a secondary objective, they may want to beat inflation, too.” This would all be included in the fund objective section of the fund fact sheet.

You invest with the goal of seeing your money grow, but some funds aim to do this more aggressively than others. For example, if you are a more cautious investor – perhaps you’re closer to retirement – you’d be looking for a consistent, low-risk return, with a focus on capital preservation and minimal withdrawals. Further away from retirement, a fund with the objective of driving capital growth may be more appropriate.

As an investment platform, Glacier offers solutions that cater to the entire investing life cycle, says Glacier Research. “This would include pre-retirement, post-retirement, investing for your kids’ education, tax-free accounts, and investing for specific goals, for example, if you’d like to go on holiday in five years’ time, and so on.”

#2: Risk profile

Every investor falls within a range of risk they’re willing to expose their capital to, and every fund has a risk profile or indicator to help an investor determine whether the fund is the perfect match for this appetite. “The role of a financial adviser is very important here, because they can profile you by asking a set of questions to gauge what your appetite for risk is, and that’ll tell you whether a fund is suitable for you,” says Glacier Research.

A fund’s risk profile tends to translate as the level of exposure to growth assets, such as equities and property, that the fund includes in its underlying investments, and therefore where it sits on the spectrum of low to high risk. “In a fund with a higher risk (aggressive) you can expect higher returns, but you should also expect higher volatility,” says the team. Likewise, funds whose objective is to preserve capital and provide an income would be found on the lower-risk end of the spectrum. With Glacier’s investment platform, you can access the widest range of funds across the risk spectrum, all in one place. This means your financial adviser can customise your portfolio selection for ultimate personalisation.

#3: Benchmark

A fund’s benchmark is the metric it aims to outperform, and this varies by fund, says Glacier Research. “Any given fund uses its range of assets to try to obtain and outperform the benchmark stated on its fact sheet,” they add. The chosen benchmark could be a predetermined market index, an inflation-targeted one, a peer-cognisant one (Association for Savings and Investment South Africa (ASISA) category average), or a custom benchmark. “A custom benchmark, known as a composite benchmark, includes a combination of indices or asset classes,” says Glacier Research. The fund manager would come up with a unique set of measures that the fund would be benchmarked against.

Predetermined market indices include, for example, the FTSE JSE CAPI SWIX or the SWIX All Share Capped.

An inflation-targeted benchmark would look something like this: CPI (Consumer Price Index) + 5%. This means the fund aims to outperform inflation by 5%.

Category average benchmarks measure against the average of funds with a similar level of equity exposure. For example, it could look like this: ASISA South African – Multi-Asset – High Equity Category Average, or Peer average South African Multi-Asset Low Equity category average.

#4: Total investment charge

The total investment charge is the sum of two different costs involved in maintaining the fund.

Total expense ratio (TER)

“Your total expense ratio (TER) is made up of the fees that cover the day-to-day running of a fund,” says the team. Think administration fees, custodial fees, and fees that the fund manager pays to have the fund on an investment platform like Glacier. Some funds also include a performance charge as part of the TER. “Normally, fund managers that consistently outperform over time charge performance fees, and this charge can be set at around 20% of the returns.” This charge may seem steep, but Glacier Research labours the importance of avoiding analysing a fund’s fees in isolation. “A fund can be expensive, but you should also look at what you are paying for. Do the fees justify the performance? It can also work the other way; the fund can underperform, but have high fees, which doesn’t work in an investor’s favour,” the team notes.

Transaction costs

These include the fees that are involved in buying the underlying assets, so the trading costs.

Glacier’s investment platform gives you access to leading local and international investment funds to suit your portfolio, including those suited to the cost-conscious investor, all in one place.

#5: Cumulative and annualised performance

These are the first numbers and charts you instinctively cast your gaze over when you pick up a fund fact sheet to understand whether it’s the right investment opportunity for you. Glacier Research explains the difference between these two performance charts or tables, and how to analyse them both to better understand a fact sheet.

“The cumulative return is the total return a fund has generated since inception as a percentage, whereas the annual performance shows the average return over a given time period, per year, as a percentage,” they say. They are both useful figures to consider, but the annualised returns typically drill down to performance over the course of one, three and five years – so can be more indicative of the long-term average returns of the fund.

Some fund fact sheets include a graph or table of rolling returns, which Glacier Research says are figures that more closely reflect the actual experience of the investor. “This shows the experience of how a fund has actually performed relative to what the market has done,” they elaborate. The numbers show the highest, lowest and annualised average return over the period indicated since the fund’s inception.

If this isn’t included on a fact sheet, your adviser can reach out to the research team at Glacier to request this information – one of the value-added services available via the investment platform. “Glacier is one of the few investment platforms that has its own research team. Your financial adviser can relay information or questions to the team, and as analysts, we can provide additional insights about a fund you’re invested in, or considering investing in.”

Ask your financial adviser why you’re not with Glacier.

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This article first appeared on Glacier Insights.

Please consult with a financial adviser before you take any action regarding your savings and investments.

Glacier Financial Solutions (Pty) Ltd is a licensed financial services provider.

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