How to read a fund fact sheet
A fund fact sheet is a condensed, two- to three-page description of an investment, such as a mutual fund or an exchange-traded fund (investment options will be collectively referred to as funds). It’s designed to help investors understand a fund’s investment strategy, holdings, performance, and risks. While fund fact sheets differ in their layout, most include a handful of the following noteworthy sections:
- Investment strategy overview
- Portfolio details
- Historical performance
- Morningstar category and rating
- Investment breakdown
- Disclosures and footnotes
Most fund fact sheets start with an investment strategy section that provides you with an overview of what the fund manager is trying to accomplish. For example, a fund’s goal might be to track and mirror a benchmark index, generate income, or maximize long-term returns. The strategy section will also touch on the types of investments the fund manager can use. So, if you’re researching stock funds to invest in, you’ll quickly find out if you’re looking at a stock fund in this section and be able to weed out which ones don’t align with your goals.
The portfolio details section provides you with more detail about a fund’s management, longevity, size, and cost.
- Ticker—The unique identifier for the fund, typically five letters, to research it quickly and easily.
- Fund inception date—The date the fund initially started. It’s helpful to understand if it has a long track record of success or if the fund is brand new and yet to prove itself.
- Fund manager(s)—The people who oversee the investment decisions and are responsible for the fund’s performance. Managers with long track records with a fund can provide stability and consistency in executing the strategy.
- Total fund assets—The amount of money currently invested in the fund.
- Expense ratios—How much it’ll cost you to invest in the fund. An expense ratio of 0.20% means you’ll pay $2 per year for every $1,000 you’ve invested in the fund. Check out any related footnotes and disclosures to fully understand how fees are collected.
Now you’re getting into how the fund has performed historically compared with various benchmarks. Most fund fact sheets show annual returns over several periods, such as one year, three years, five years, and maybe longer.
A good fact sheet will also show you the returns of other indexes and funds with the same strategy as the fund you’re looking at. For example, let’s say you’re reading about an S&P 500 Index fund. The fund’s strategy is to mirror the results of the S&P 500 Index itself—a grouping of 500 large, domestic companies. With this side-by-side comparison, you can tell if the fund you’re considering successfully replicated the results of the S&P 500 Index or not. While the results may not be identical, they should be close when tracking an index.1
Remember not to focus exclusively on the investment returns—past performance isn’t necessarily a representation of future outcomes.
Morningstar category and rating
Morningstar, Inc. is a well-known financial services company that provides a standard to compare investments fairly. Without a single source for this information, you could get differing opinions, leading to confusion in your investment research. Fund fact sheets often leverage two key data points from Morningstar:
Morningstar category—These categories—such as large growth or high-yield bonds—allow investors to accurately compare funds with similar objectives by giving them standardized labels, or categories. Rather than dissecting the investment strategy, the Morningstar category gives you a quick answer as to whether two funds are trying to accomplish the same thing.
Morningstar rating—This purely mathematical rating system helps investors understand the fund’s historical performance relative to the amount of risk associated with the fund. Ratings range from one to five stars, with five-star funds being the best; however, just because it’s a five-star fund doesn’t mean it’s necessarily the fund for you. Morningstar ratings are just one of many factors to consider.
It’s helpful for you to see how the fund invests its money beyond a general description. That’s why many fund fact sheets include:
- A list of the 10 largest investments in the fund and the percentage they make up
- A geographical representation of where the companies are located across the globe
- A sector breakdown, detailing the types of companies the fund invests in (e.g., financial services or technology)
Disclosures and footnotes
While the fine print at the end of the fund fact sheet may not excite you, read it anyway. You’ll pick up on some key details that help make sense of the content we’ve already discussed. This section will also provide context on the risks involved with the investment because there’s no such thing as a risk-free investment.
Make informed investment decisions
The purpose of the fund fact sheet is to help you in your investment research, so you can make intelligent investment decisions. Learn what the fund’s strategy is and the types of investments included. Understand how the fund has performed relative to its peers and benchmark. And consider all of the details in between, including the risks associated with investing, to ensure the fund aligns with your investment goals.
1 It is not possible to invest directly in an index. The performance of an index is not an exact representation of any particular investment. Like all mutual funds, index funds are subject to market risks and will fluctuate in value. Index funds are designed to track the performance of their target index, but may underperform due to fees, expenses, or tracking errors. These investments are not actively managed and do not necessarily attempt to manage volatility or protect against losses in declining markets.
For complete information about a particular investment option, please read the fund prospectus. You should carefully consider the objectives, risks, charges, and expenses before investing. The prospectus contains this and other important information about the investment option and investment company. Please read the prospectus carefully before you invest or send money. Prospectus may only be available in English.
All investing involves risk, including potential loss of principal. There is no guarantee that any investment strategy will achieve its objectives.
This content is for general information only and is believed to be accurate and reliable as of the posting date but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
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