This article will help you learn how to read a fact sheet so you can choose the right index funds for your portfolio.
What is a Fact Sheet?
An index fund Fact sheet is a simple document which outlines the most relevant investment information about the fund.
How to read a Fact Sheet
It is important to read the fact sheet before investing in a index fund to make sure you fully understand what you are investing in. You must make sure it is the right investment for you.
Taking the Legal and General UK 100 Index Trust as an example.
- Is the Fund compliant for the country you live in? Domicile UK.
- Is it in the correct currency? Base Currency GBP
- Is it tracking the right index? Fund Aim track the FTSE 100 Index
- You understand the risk profile. Risk and Reward Profile 6.
- How big is the fund? (the bigger the better as smaller funds may have to close). Fund Size £6.7 Billion
- How much it will cost you? No initial charge and on-going fee of 0.06%.
- How much the dividend might be. (you can’t be sure about future yield as it unpredictable, but this will give you an indication). Historical yield 2.8%
So, I can see this fund is UK complaint, will track the FTSE100 and will be invested in pounds. I know investing in shares in risky compared to having money in the bank and the risk profile is high. This is a big fund with over £1 billion invested. There are no initial charges and a small 0.06% on-going charge. The charges will be comfortably covered by a 3%+- dividend.
- Is it replicating the index efficiently? The Tracking Performance 0.04 difference over 5 years
I can the tracking error is small, so this fund closely tracks the index.
- Double check what the fund is invested in so you know and are comfortable with what you are investing in. Check the portfolio breakdown.
I can see here financials and consumer goods make up nearly 40% of the index but technology only 0.8%. If I wanted to have a higher exposure to technology, I would need to find another index or add something else to my portfolio. I can see most companies are Large Cap and what the top 10 holdings are.
Always do your research before investing in any financial products.
FACT SHEET FAQs
Where can I find the Fact Sheet?
You will be able to find one on the funds website, through your broker or one of the search sites like Trustnet or Morningstar. Hargreaves Lansdown have a good search tool.
What is the Class?
There are different variations of the same fund according to several factors like base currency, size of initial deposit and income vs accumulation. To distinguish between these variations, they use different classes. Annoyingly, these are not the standardised across the industry. That is why it is often best to check the products your broker offers as they will have the most relevant ones for you to hand.
What are the differences between the Fact Sheet and the KIID Document?
They are more similar than different. They both hold key information about the fund, and you should read both to be sure you fully understand what you are investing in.
The fact sheet was taken from Hargreaves Lansdown.