How to Read a Fund Factsheet

If you’re new to investing, it can be intimidating trying to handle the volatility of the market across individual stocks.

The key to understanding a stock is in being able to read a fund’s biodata, which is listed on its factsheet.

Taking it to the next step, seeing these investment options plotted on a chart thereafter will help you understand the relationship between volatility and risk.

For this example, I’m using the Pictet Health Fund (Disclaimer: This is an exercise, and neither a promotion for this fund nor is meant to be taken as financial advice.)

You’ll find these items listed in a fund’s biodata, which we’re going to break down in this article:

  1. Basic information
    • Name
    • Fund house
    • Objectives
    • Benchmark
    • Size
    • Age
    • Price
  2. Costs
    • Management fee
    • Sales charge
    • Other fees
  3. Risk and returns
    • Risk and volatility
    • Past performance
  4. Investment holdings
    • Largest holdings
    • Asset allocation

Basic information

Name: The fundhouse name is typically the first word of the fund name, followed by the focus of the fund—in this case the fund “Pictet” focuses on investing in the healthcare sector.

Fund house: The fund house of this fund is Pictet Asset Management. The company employs fund managers to manage the fund.

Objectives: This fund mainly invests in equities of companies that are active in sectors related to health, with a part of the fund investing in other sectors.

Benchmark: The benchmark of the fund differs from fund to fund. This benchmark is set to showcase the fund’s ability to invest in accordance with the benchmark, or exceed it. In some cases where you can invest in the benchmark directly, if the fund fails to perform better than the benchmark, then it only makes sense to invest in the benchmark itself. In some cases though, the benchmark is just an indicator and you cannot invest in it directly, so you’d invest in the fund.

Size: How much money the fund has in total. This fund size is USD 735 million.

Age: Can be inferred from the inception date. This fund was started on 30th June, 2004.

Price: Refer to NAV/Share for this. This means you will need USD 347.05 to buy a share of this fund. You can usually buy fractional shares of a fund, too.

Costs

Management fee: The management fee is intended to compensate the investment managers for their time and expertise required to manage the portfolio. It can also include other items such as investor relations expenses and the administration costs of the fund.

Sales charge: This refers to the cost paid to the sales representative and platform, it is usually a percentage that ranges from 0%-5% and is charged only once.

Other fees: Management expense ratio (MER), also referred to as the expense ratio, includes the management fee and other costs of managing the fund. These costs include the trading costs of buying and selling stocks.

Risk and returns

Risk and volatility: Risk is unavoidable when it comes to investing. So at the very least it’s important to understand the risk so you don’t get surprised when things go south. Under the section of Portfolio characteristics, these values will be useful to help you figure out the level of risk.

Alpha: Used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over a period. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.

Beta: The beta calculation is used to help investors understand whether a stock moves in the same direction as the rest of the market.

  • A beta value that is less than 1.0 means that the security is theoretically less volatile than the market. Including this stock in a portfolio makes it less risky than the same portfolio without the stock.
  • A beta that is greater than 1.0 indicates that the security’s price is theoretically more volatile than the market. For example, if a stock’s beta is 1.2, it is assumed to be 20% more volatile than the market. Technology stocks and small cap stocks tend to have higher betas than the market benchmark. This indicates that adding the stock to a portfolio will increase the portfolio’s risk, but may also increase its expected return.
  • A beta of -1.0 means that the stock is inversely correlated to the market benchmark.

Read more: The Big Risks of Taking No Risk

Past performance: You can refer to the past performance of funds across different time ranges. YTD refers to the performance in the current year from 1st January till today. You can also look at the returns over periods ranging from 1 month to since the day it started. “Since INC” refers to performance since inception date.

Investment holdings

Largest holdings: For most funds, it will be unusual to see a stock taking up more than 10% of a fund. This fund has 45 stocks (Refer to “Positions: 45”) on the top right corner of the first page of the factsheet. Instead of telling you exactly which 45 stocks it holds, the factsheet will only reveal the top 10 stocks.

Asset allocation: This can be further broken down into 2 parts, the industry and the geographical. In this fund, which is focused on healthcare stocks, there’s a further breakdown into different sub-sectors of healthcare.

This fund may seem like it is heavily focused on the United States though it has no geographical mandates. In this case, further reading reveals that this is because most healthcare stocks are listed in the United States.

I hope this helps you to understand the unit trust or mutual fund you’re eyeing. And before you start on this exciting journey, please also read the 4 basic rules of investing.

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