You will read a real ETF factsheet and record the six facts you need to judge a starter fund.
The first ETF factsheet Nadia opened was four pages long. It had a performance chart, a table of returns, a list of risks in small print, a pie chart of countries, another of sectors, and a paragraph of legal text at the bottom. She read the whole thing and came away remembering the chart and nothing else.
A factsheet is useful once you know what you're looking for. For judging a starter fund, six facts matter more than everything else on it. This exercise takes about 25 minutes. You'll find a real factsheet, pull out those six, and write them down in a form you can compare later.
Factsheets are published by the fund's issuer, the company that runs it. Search for the fund's name and "factsheet" on the issuer's website, or follow the link from the fund's page on SGX. Most are updated every month or every quarter.
Check the date at the top before you read anything else. An old factsheet will show the wrong fund size and out-of-date returns. If the date is more than a few months old, look for a newer one.
Keep the fund's prospectus and product highlights sheet handy too. They're longer, but they're the official documents, and if anything on the factsheet is unclear, the answer is usually there.
Work through the factsheet looking for each fact in turn. Issuers label things differently, so each item below says what the fact means as well as its usual name.
Index and market: the name of the index the fund tracks and the part of the world it covers, such as Singapore large companies, US large companies, or developed and emerging markets together. Yearly cost: usually shown as the total expense ratio, or TER, sometimes as the ongoing charges or management fee. It's a percentage of your money taken each year. Fund size: the total value of the fund's assets, often called assets under management or fund size, in dollars. Listing and trading currency: the exchange where you buy it, and the currency of the counter you'd trade. Some SGX funds have both an SGD counter and a USD counter with different codes. Dividend policy: whether dividends are paid out to you, often called distributing, or kept and reinvested inside the fund, often called accumulating, and if it pays out, how often. Domicile: the country where the fund is legally set up. It can differ from the listing, so an SGX-listed fund might be domiciled in Singapore, Ireland or Luxembourg.
If a fact isn't on the factsheet, look in the product highlights sheet or the prospectus. Write "not found" rather than guessing.
Put the six facts into a table with one row each. Nadia used a made-up fund for her first practice run, and her table reads like this.
Index and market: a world index of large and mid-sized companies in developed and emerging markets. Yearly cost: 0.25% a year. Fund size: S$800 million. Listing and trading currency: SGX, SGD counter, with a separate USD counter. Dividend policy: distributing, twice a year. Domicile: Ireland.
That's all the table needs. When you compare three funds in lesson 5.4, Shortlist three ETFs and choose one, you'll build the same rows for each, plus the spread you learned to measure in lesson 4.2.
Underneath the table, add a short note on each of the four risks from lesson 4.3, What can go wrong with an ETF, based on what the factsheet shows.
Nadia's note for her made-up fund says: market risk high, since it's all shares. Concentration medium: the top ten holdings are a noticeable slice and the US is the largest country by far. Currency high: almost everything is priced outside Singapore, even though she'd buy in SGD. Product risk low: the fund is large and its returns sit close to the index's, net of the fee.
You'll notice plenty on the factsheet you haven't used. The past performance table is the most tempting. It shows what happened, which tells you whether the fund tracked its index, but it says nothing about what the index will do next. Don't choose a fund because last year's number was high.
Other items, such as withholding tax rates, share class codes and replication details, matter more once you hold several funds. Build and run an ETF portfolio covers them, starting with lesson 3.3, Domicile and withholding tax on dividends.
A finished summary fits on half a page. It names the fund and the factsheet date, has six filled rows with no guesses, and has a one-line note on each of the four risks. Someone else should be able to read it and know what the fund holds, what it costs and how it could disappoint.
Pick one real ETF you might consider, download its latest factsheet, and work through the four steps.
Download one ETF factsheet and fill a table with its index, yearly cost, fund size, listing and currency, dividend policy and domicile.
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