Here at New Money, we’re propped in front of a fund factsheet most days. Recently, though, it was pointed out to us that most do not enjoy such thrilling pursuits. As such, a fund factsheet is complete gobbledegook to almost everyone.
And so, we bring you another classic New Money 101: How to read a fund factsheet like a sandwich. It’s everything you need to know when weighing up the sustainable fund you want to invest in – just as you would your sub of the day.
What’s on the label?
Like a label on a sandwich, a fund factsheet is the most basic information you need to know about the investment fund its slapped on. You will find factsheets by Googling a fund name, or on the investment platform you have an account with (which you need to invest in a fund. More on that HERE).
Just as you would assess your lunch choice, the first things to look for are the fund name, what’s inside it and how much it costs. To demonstrate, we have pulled an example factsheet from Trustnet – a great source of free info on funds – for your delectation.
Fund flavour and price
As you will see, at the top we have the name: ‘Liontrust Sustainable Future Global Growth 2 Acc’. Down the right hand side you will see fee information. This fund costs 0.75% a year to invest in. This means that if you invest £1,000, this will cost you £7.50 a year in fees. This is because this fund is an ‘active fund’, which means it has human managers, whose names are also listed on the right (Peter Michaelis and Simon Clements).
Active funds are typically more expensive than passive, or ‘tracker’ funds that run on a computer algorithm and just invest evenly in all the companies in a market (see our video: ‘Active vs. Passive: Is it easy being green?’ for more on this).
There is a whole bunch of other info on the right, most of which you can pretty-much ignore. Especially the minimum investment. If you invest through a low cost investment platform, you can invest in most funds with a lump sum of £100 then £25 a month, or sometimes even less. Check out ‘Make responsible investments in 4 easy steps’, for more.
After you’ve weighed up these basic facts, you then want to find out what’s inside. You can start by reading the fund’s objective at the top (see picture above). This is just as your sarnie will give you some top line info like ‘chicken, bacon, lettuce and mayonnaise on brown bread’. In this case, the fund invests in companies all over the world that meet Liontrust’s rules for environmental and social responsibility.
If you are truly health conscious, you’re then going to want to drill down a little deeper into the ingredients. First, skip down to top ten holdings to see the ten biggest investments in the fund. This is the fastest way to cut through any investment spin, or ‘greenwash’. If it says ‘ESG’ or ‘sustainable’ on the label but has Exxon Mobil as a top ten holding, move on.
On our example factsheet, you can also see a further analysis of the investments in the fund in regional breakdown and sector breakdown. This tells you where the fund is invested and in what. In our example, most of the investments are in companies in the USA, while the sector (type of company) it invests most in is tech companies.
Healthy choice or stodgy sausage?
Like a calorie traffic light system, you then want to get an indication of what it’s going to do for you by looking at the performance of the fund. In our example, this is placed right up front on the cumulative performance’ chart and table.
As you will see, Liontrust Global Growth is a pretty healthy choice in terms of performance – having returned 105.7% over five years compared to an average of 68.4% from other funds in its sector, which is the ‘IA (Investment Association) Global’ sector. It is a similar story across every time period – which is why this fund ranks among the top quarter of all funds in this sector of 333 funds (Quartile: 1).
Other fund may use a ‘benchmark’ to measure their performance against. This is something the fund sets itself and might be the MSCI World Index, for example. Also, every fund will have a whole bunch of different factsheets depending on which platform or research tool your using.
If these different platforms are using factsheets from different time periods (like one was published in August and another in March) the information may be different, as well as the layout. So, to avoid the brain drain the best thing is to use one source to assess your funds.