All you need to know about minimum disclosure documents or fund fact sheets.

If the complexities of fund fact sheets or minimum disclosure documents overwhelm you, we have good news. You can expand your financial knowledge and seize investment opportunities by using this simple guide to understand fund fact sheets better. Keep it handy and equip yourself with the essential insights to make informed investment decisions and confidently navigate your financial journey.

The importance of fund fact sheets and the benefits they provide

A fund fact sheet, also known as a minimum disclosure document, is something all fund managers who offer unit trusts or collective investments must provide to investors. It is governed by regulation and presents fundamental yet vital information about a specific fund, enabling potential investors to make informed decisions.

Some investors use fund fact sheets to compare different funds as they build their portfolios. And because the document follows a set formula, it’s easy to compare apples with apples when considering different funds and fund managers. It’s basically a ‘cheat sheet’ when investing in funds.

There are a couple of reasons why it’s a good idea to understand and be able to interpret fund fact sheets, including:

  • Selecting the correct funds to invest in
  • Knowing where your money is going and who is managing it
  • Being an active participant in your investment decisions alongside your financial adviser
  • Comparing like with like when assessing funds you want to invest in, and
  • Asking the right questions and getting the answers you need.

Below are the five key features on a fund fact sheet that you must be able to understand if you want to make informed investment decisions:

  1. The fund objective
  2. The risk profile
  3. The benchmark
  4. The total investment charge, and
  5. The cumulative and annualized performance.

Let’s dig a little deeper into each one.

  1. What is the fund objective?

The fund objective is the overall goal or what the fund manager wants to achieve by investing in the various assets in a fund. This section of the document shows the fund’s asset class exposure, sets the fund’s goal against a specific benchmark, the fund manager’s plan to reach that goal or aim, and what the ideal investor looks like for that specific fund.

It summarises the information in the rest of the document, including the ideal investment timeframe, underlying investment asset classes, equity exposure, risk, performance metrics, and the fund’s exposure (locally and offshore).

Some funds, like multi-asset funds, can have more than one objective depending on the fund manager’s aim. These objectives are all included in this section of the fund fact sheet. As you study different fund fact sheets, you will find some funds targeting growth or income (depending on the priority) and wanting to beat inflation too. It all depends on the fund.

For example, most investors want to see their money grow, and some funds strive for this more aggressively than others. Cautious investors, usually those closer to retirement, look for consistent and low-risk returns focused on preserving capital and few withdrawals. On the other hand, those further away from retirement might want a fund that drives capital growth quite aggressively. Either way, this information is contained in the fund objective section.

The fund objective section of a fund fact sheet also helps you align your investments according to your life cycle, such as retirement, education for your children, tax-free investments, holidays, etc.

  1. The risk profile section on a fund fact sheet

As an investor, you will know that you have a certain risk appetite that reflects in your investments. The risk profile section on a fund fact sheet indicates to investors if the fund matches their risk appetite or profile.

A fund’s risk profile also shows its exposure to growth assets like equities and property included in its underlying investments. The exposure levels indicate where a fund sits regarding risk. Funds with higher risk are more aggressive, so investors expect higher returns. They are also more volatile. Funds with lower risk usually focus on preserving capital and providing income.

If you’re unsure what your risk appetite is, your financial adviser will certainly be able to help you determine your appetite and suggest suitable funds to invest in based on that.

  1. What is a fund’s benchmark?

The benchmark section on a fund fact sheet shows the target or metric the fund wants to meet and, ideally, out-perform. Each fund’s benchmark is different, and each fund will use its various assets to reach and exceed the benchmark on its fund fact sheet.

Here are some examples of the benchmarks you might find on a fund fact sheet:

  • A predetermined market index like the FTSE JASE CAPI SWIX or the SWIX All Share Capped
  • An inflation-targeted one like Consumer Price Index (CPI) + percentage, meaning the fund wants to outperform inflation by the stated percentage
  • Category average or peer-cognisant ones like the Association for Savings and Investment South Africa (ASISA) Multi-Asset – High Equity Category Average or Peer Average South African Multi-Asset Low Equity
  • A custom or composite benchmark that includes a combination of indices or asset classes set by the fund manager.
  1. What is the total investment charge?

The total investment charge of a fund is the sum of the Transaction Costs and the Total Expense Ratio (TER), both used to maintain the fund. This section helps investors determine if a fund suits their portfolio when it comes to cost.

The Transaction Costs include the fees used for buying underlying assets (the trading costs).

The TER comprises the day-to-day fees to run the fund, like administration and custodial fees, and the fees the fund manager pays to have the fund on an investment platform. Some funds’ TER also includes a performance charge for fund managers who consistently outperform.

When considering the total investment charge on a fund fact sheet, always consider what you are paying for. Although expensive, the fees might justify the fund’s performance. But if the fund has high fees and always underperforms, it should act as a warning sign to investors.

  1. The cumulative and annualized performance section of a fund fact sheet

When looking at a fund fact sheet, most investors instinctively look at these numbers and charts first to determine if the fund is the right investment opportunity. This is a great start, but you must understand the difference between cumulative and annualized performance to understand a fund fact sheet better. Being able to analyze these charts or tables is even better!

The cumulative return is the total return generated by a fund since its inception as a percentage. The annual performance shows the average return over a certain period per year as a percentage. Both are useful when deciding whether to invest in a fund. But the annualized returns usually indicate the long-term average returns of the fund better because it shows the fund’s performance over one, three, and five years.

Some fund fact sheets include a graph or table of rolling returns, showing the highest, lowest, and annualized average return for the specific period since the fund’s inception. These figures are usually a good indication for the investor of the actual performance of the fund relative to the market’s performance.

If these figures are not on the fund fact sheet, we recommend that you ask your adviser to help obtain them. After all, knowledge is power, and asking the right questions can provide the insights you need to make informed investment decisions.


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