Having looked at some of the challenges that asset managers face when trying to meet the demands of different types of investors when creating a factsheet, here we focus in on some of the more important areas that investors need to understand when deciding when to invest in a fund. 
If we start by imagining that we are a potential buyer of a fund, we can be pretty sure that a professional adviser will have done a significant amount of research and due diligence before committing their clients’ money to the fund. The factsheet may have been a starting point for this research, but the reality is that performance screens, due diligence questionnaires and other analysis will be the key drivers for their decision as to whether they should invest.
The most likely buyer of a fund based on just the fact sheet will be a self-directed investor, although in the age of the internet, they too may have access to some simple screens from platform and data providers. Given that background, the inclusion of top-10 holdings, performance data, sector and geographic breakdowns provide some additional colour but the real value of a factsheet comes with the clarity of the content, the quality of the commentary and the ability of the factsheet provider to add value over and above the readily available data through a variety of sources.
First and foremost, the potential investor should be given a clear and unambiguous objective of what the fund is trying to achieve. Historically, much of the asset management industry has made an art form out of being vague in the expected outcome for an investor. By giving a clear objective, to outperform a target, by a certain amount, over a specified time period, an investor can make an informed decision as to whether that objective ties in with their own expectations. Happily, the regulator has been proactive in pushing asset managers to do this. If the asset managers also gave more of an indication of what environments their funds would be likely to perform in (value versus growth, large-cap versus small-cap, domestic versus overseas) this would give even better clarity for retail investors.
When it comes assessing whether a fund has achieved that objective and more importantly is likely to do so in the future, often the performance data that is shown is, at best, unclear and, in the worst case, unhelpful. Including a measure of consistency of performance against the stated objective in addition to the historic performance would be a good starting point.
In many cases, an element of this is included in the quantitive ratings that are available in the marketplace but those ratings are often very performance-driven and may not pick up the some of the nuances that a qualitative approach can also bring. Having said that, the quantitative ratings have a variety of different methodologies and therefore may be difficult to compare on a like for like basis across different providers rankings.
Once investors have a full understanding of what they can expect from a fund and the likelihood that the fund manager has the skills to meet that objective, then they can start to consider other factors before making the decision to invest. In the next article we will look at the risks that an investor needs to consider when they are making an investment decision.
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.