Mutual fund investing: How to read a mutual fund factsheet
January 10, 2019
In a previous article, we wrote about what Singapore-based investors need to understand about unit trusts (also known as mutual funds) before they start investing. We highlighted several characteristics, such as investment methodology, asset classes the fund is investing into and who the fund manager is, that investors need to know when they are considering investing in a fund.
The good news is that most of this important information can be easily found in a fund factsheet. Every mutual fund has a factsheet which is updated on a regular basis. By understanding the information displayed on a fund factsheet, you will be able to quickly assess how each fund operates. Factsheet formats tend to vary between different fund managers, but they will contain similar information.
As an example, we will go through a fund factsheet from PIMCO’s Emerging Markets Bond Fund SGD. PIMCO is one of the world's leading fixed income investment managers managing $1.77 trillion in assets. Note that this is a retail E share class fund, and Endowus uses the institutional share class (which has lower fees) to build our portfolios.
Let’s look at each of the individual sections:
1) Fund Manager and Name
The fund name can generally be broken down into the fund manager (PIMCO), the geographical region (Emerging Markets) and asset class (Bond Fund). You should do your own research or ensure that your investment advisor has done due diligence on the fund manager, as you are entrusting them to make the right investment decisions on your behalf. Look at the fund manager’s investment philosophy and methodology, track record, and assets they have under management.
2) Fund Description
This outlines the fund’s investment objective (what the fund is aiming to achieve) and investment strategy (how the fund is designed to potentially achieve it). Class E refers to the Fund’s share class. Each fund will have various share classes with different fee structures and minimum investment amounts.
3) Key Fund Facts
ISIN: The ISIN (International Securities Identification Number) is an unique identifier and the best way to identify your fund across different platforms. Ticker symbols can sometimes vary.
Inception Date: The date that the fund started trading. Generally you should look at funds with a longer track record, but you can also take into consideration if the Fund Manager has run similar strategies in the past.
Unified Management Fee: An annual fee the funds will charge for fund expenses, including management fees, administrative fees, and operating costs. This is deducted from a fund’s net asset value (NAV), and accrued on a daily basis.This is more commonly referred to as Total Expense Ratio (TER) or Ongoing Charges Figure (OCF).
Fund Type: This is the fund’s country of residence, and is important to note because of potential tax implications. This can sometimes be referred to as Domicile.
Total Net Assets: The total amount of assets in the Fund.
Accumulation / Income: Accumulation share class means that any dividends or interest received will be reinvested back into the fund, with no additional charge or fees in reinvesting. Income share class means that any dividends or interest received will be periodically distributed by the Fund Manager to the investor.
This shows the fund’s performance compared to its benchmark during various time periods. Understanding the benchmark is key when comparing performance data - look at how closely the fund tracks its underlying benchmark in terms of underlying investments. For example, you should expect a low tracking error for ETFs compared to its underlying index.
Returns are typically shown over a 1-year, 3-year, 5-year and/or 10-year time frame, and you will often see fund performance shown by calendar year as well. It’s important to look at returns over longer time periods, and remember that past performance is not a guarantee of future returns.
Fund Statistics: This shows some of the key statistics of the Fund, such as effective duration and average credit quality. For equity funds, some of the more common statistics shown would be beta, standard deviation and Sharpe ratio.
Holdings: Most factsheets will show the Fund’s top holdings. Given PIMCO’s diversified bond portfolio, you can see here that the largest holding (Sberbank bond) makes up ~ 1.5% of the total market value of the Fund.
Sector Allocation: This shows a breakdown of how the Fund is allocated in terms of different sectors. For equity funds, it’s more common to see sector exposure by industry of the Fund’s underlying investments.
Top 10 Currency Exposure: This shows a breakdown of the largest currency exposures of the Fund. For equity funds, it’s more common to see geographical exposure of the Fund’s underlying investments.