Fund managers produce monthly fund factsheets with an often dizzying array of information for existing and potential investors to absorb. These include performance figures, top-10 holdings, sector or country breakdown and key facts such as total fund size and the fund’s net asset value or price, as well more complex performance and risk-based ratios. This data is all very interesting to a seasoned investor or an investment professional, but does it help the man on the Clapham omnibus understand the mechanics of the fund? Does the factsheet answer his questions in a clear and simple way? 
One of the problems with factsheets is that they are often trying to address the needs of different people. Potential investors may want answers to a series of questions that clarify the investment proposition before entrusting their money to the fund manager, such as what is the fund’s objective and how is the fund managed. Existing investors on the other hand may want to know how the fund has performed since they invested, what the managers latest thoughts are and how the portfolio positioning has changed since they last looked at the fund. Other information, such as which Investment Association Sector the fund resides in, its information ratio and Sharpe ratio or the market capitalisation split will mean more to some readers than others.
Asset managers tread a fine line trying to get that balance right but, in a world where there is increasing pressure on margins and firms turn to technology to help them industrialise the output, the output can often be too formulaic and fails to address investors’ needs.
So, what should a good factsheet do? The industry regulator, the FCA, has indicated that they would like asset managers to make sure that when retail investors are looking to invest in a fund, they can get answers to questions such as:
What do I get charged?
Can I see what I pay for?
What simple indicator do I have that will tell me what this fund is trying to do and what it will achieve?
What are the upsides and downsides?
Am I paying more for a choice that I’ve made, and when I’ve made that choice can I understand it?
A good factsheet ought to answer all of these questions for a retail investor in a clear and simple fashion. In addition, as investor demands change there are also other areas that may become more important to potential investors such as what are the environmental, social and governance credentials of both the fund and the parent company? How consistently has the fund achieved its stated objective? Does the fund look like good value for money compared with its competitors?
Since the launch of Square Mile’s Academy of Funds in 2014, our factsheets have sought to address some of these questions for investors by answering these questions in plain, simple English. In this upcoming series of articles, we will look at how to answer some of these questions and what the answers mean for investors, the first of which will explore what they can take from a fund’s key facts
James Glover is chief operating officer for research and consulting at Square Mile Investment Consulting and Research. The views expressed above are his own and should not be taken as investment advice.