Fund fact sheet: Your menu for unit trust investing
Understand the mechanics and how to read a fund fact sheet ( Minimum disclosure document)
The unit trust world is big, currently, there are 1700 unit trust funds available in South Africa alone. As an investor in the unit trust world, we need all the help possible to analyse and understand each fund before we invest in them. Luckily for us, fund fact sheets are like a menu, explaining what we are getting ourselves into before we order or invest in this case. In this article, we will look at how to read and understand a fund fact sheet. Let's dive in!
What is a fund fact sheet?
A fund fact sheet, more recently called a minimum disclosure document, helps you understand and review the unit trust investment before investing. A fund fact sheet aims to provide all the relevant information to investors to empower them to make an informed investment decision. The Financial Sector Conduct Authority (FSCA) provides a minimum list of disclosures that need to be made within this document.
Why is it important to understand a fund fact sheet?
The disclosures made within this document will assist you in deciding if the fund you are looking for is a good fit for you. It can also be compared with other funds in the same sector to ensure that you are comparing similar funds to each other. Once you have a funds ASISA category you can use this database to ensure you are comparing similar funds and go find their fund fact sheets to further your research.
The important elements of a fund fact sheet
Fund objective: The fund objective will give you an idea of what the fund is trying to achieve. It can be something like creating long-term wealth for investors, or not losing capital over any 3-month rolling period. What the fund managers are trying to achieve should align with your investment time horizon. For example, if you are looking for long-term growth, then the fund not losing capital over 3 months will not be for you as it will be much more conservative.
Risk profile and ASISA category: The ASISA categories promote disclosure and transparency within the unit trust industry. The naming convention works as follows. The first part is where, this indicates the geographic exposure of the fund. The second part is followed by what, which indicates the main asset class the fund will be invested in. Knowing the classification tells you if you are in a conservative or risky asset class. A second filter beyond the ASISA category is the funds' risk profile, this will be indicated somewhere on the fund fact sheet and can look like the two examples below.
The image above shows that the fund is conservative and the image below shows another fund being moderately risky, with a recommended investment term.
If there are no visual indicators they can be written somewhere in the investment objective and investment policy. It could be something like, the fund is not suitable for investors concerned by short-term losses or that the fund is volatile and aims for long-term growth. These are two examples of riskier and more volatile funds.
Track record: When trusting your money to be managed by an investment professional, you want to know that the investment team or fund has been around for a while. Ensure the fund you are investing in has a track record of at least 5 years or longer.
The second important part of the track record is how did the investment team compare against their benchmark. For conservative funds, focus more on the shorter terms (1-3 years) and if the managers provide benchmark-beating returns. Riskier funds focus more on the longer term, such as 5 years and more.
*Note: I've never seen an asset manager who shows on graphs that they underperform the benchmark. Just stating that you aren't fooled by a pretty graph. Do your homework properly.
Minimum investment and Reg 28 compliance: The fund managers will provide you with a minimum investment amount that they accept into the fund. Once this amount has been funded, one can make additional (ad hoc) contributions to your investment.
If you are looking to invest your pension fund money (any pre-retirement money), the fund will have to comply with regulation 28. Scan the fund fact sheet to see if this fund is Regulation 28 compliant.
Cost: As compounding interest pays, it also compounds costs. Costs over the long run can have a dramatic impact on your investment value. This study shows a 31% difference in investment value for a 1% fee difference between two investments over 30 years.
The cheapest isn't the best, so use your cost comparisons relative to other funds you are looking at to compare like for like. It's important to note that the performance shown on a fun fact sheet is after the fund management fees. Other fees will have to be deducted
Where can I get a fund fact sheet?
When you are looking for more information about a fund, the best place to find the latest version will be on the asset managers' website. Just Googling the fund name and fund fact sheet might not provide the latest version. Ensure you view similar dates when comparing funds.
Practical example of how to do fund fact sheet research
Let's dive into an example by analysing a South African multi-asset income fund. Based on the ASISA naming convention, we know that this category invests locally, and its main asset classes will be multi-asset classes to produce income. In English it means, conservative funds, protecting your capital, and providing good income.
1: We start by clicking on the link. Then click on the sector you want to compare. In this example, the multi-asset income sector. You will see a link to funds that complies with the rules within this sector. You can compare funds within this sector with each other, but today we are analysing 1 fund.
I randomised and picked PSG diversified income fund. Based on the rankings, the fund seems to be doing well within the category and seems to be consistent. In the next step, we will look at its fund fact sheet.
2: Googling for the PSG diversified Income fund gave me this result
Let's analyse the fund based on the criteria discussed above:
Fund objective: The fund states that it aims to preserve capital while providing income for investors. It also mentioned that the fund is Reg 28, which can be used in retirement funds.
Risk profile and ASISA category: This easy-to-understand graph on the fund fact sheet, shows the kind of risk you can expect. It also shows the type of return you can expect. It shows low risk and doesn't expect big returns.
They indicate and confirm that the fund complies with the ASISA South African Multi-Asset Income Funds. We know that the fund invests locally, and in conservative asset classes to produce income.
Track record: The fund has an inception date of April 2006 which can be seen in the fund details above. This means the fund has been around long enough for you to trust the managers while you enjoy sleep easy investing.. When looking at the below graph, the fund has a stellar track record when looking at its historical performance. The short term performance is under its benchmark, which could be a red flag or a viable reason for it.
Minimum investment and Reg 28 compliance: The fund does not mention its minimum investment, this can easily be obtained by emailing or phoning the asset manager. As mentioned above, they did state the fund is Reg 28 compliant. It means you can use the fund for your retirement money
Cost: The graph below shows the funds' total investment charge. When comparing this fund to other funds, ensure that its cost is more or less in line with the other funds. Other fees that you will be liable for are admin fees, and advisor fees if you invest through one.
There are a vast array of investment options available. The retail investors are overwhelmed by choices and lingo makes it more difficult to understand what you are investing in. By focusing on the important elements of a fund fact sheet which we discussed, you will be able to distinguish between good and bad funds and know which funds will suit your needs.
If you are unsure or have questions, please message us on Twitter/Facebook or send us an email at email@example.com. We would love to provide guidance.
If you want to find out more about becoming financially independent, please see our free course. If you want a blueprint toward financial independence, you can enrol in our Stages to financial independence course.
Onward to Financial Independence
If you found this blog post helpful please follow us on Facebook and Twitter @finsesh for more tips on Financial independence and sign-up free to stay up to date on your journey to financial independence with our personal finance money blog.