How to monitor mutual fund performance

Understanding how your mutual fundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the fund’s goals for risk and return. You can redeem your fund units at any time.+ read full definition is doing depends on many factors. Here are a few different ways to tell if you’re getting the most from your fund.

1. Read Fund Facts

This is a user-friendly guide that provides key information about your mutual fund including fees and performance. Beginning May 30, 2016, mutual fund companies are required to give investors a copy of Fund FactsFund Facts A user-friendly guide that provides key information about a mutual fund including fees and performance. Mutual fund companies are required to give investors a copy of Fund Facts before they decide to purchase a fund.+ read full definition before they decide to purchase a conventional mutual fund. Check out a sample Fund Facts.

2. Compare it to other mutual funds

Use resources like Globefund or Morningstar to see how a mutual fund is performing relative to other similar funds.

3. Use a benchmark

Compare a fund’s performance against a relevant benchmarkBenchmark A yardstick that you can use to measure the performance of an investment. Example: a stock market index may be a benchmark you can use to compare how well your own stocks are doing.+ read full definition such as a market or sectorSector A part of the economy where businesses provide the same or related products or services. May also refer to a group.+ read full definition indexIndex A benchmark or yardstick that lets you measure the performance of a stock market, part of a stock market or a single investment. Examples: S&P/TSX, S&P/TSX Canadian Bond Index.+ read full definition that tracks a group of selected investments (for example, the S&P 500 Index). Use this portfolio benchmark calculator to see how your fund compares.

4. Add up the fees

Fees and expenses reduce your fund’s returns. Use the mutual fund fee calculator to see how fees and other costs affect what you make.

You can learn more about the structure of mutual fund fees in Canada and current issues surrounding their structure from the Canadian Securities Administrators.

5. Disclosure documents

These documents contain information that can help you to assess a mutual fund. Securities regulators require mutual funds to file documents such as:

• Fund Facts
• the simplified prospectusProspectus A legal document that sets out the full, true and plain facts you need to know about a security. Contains information about the company or mutual fund selling the security, its management, products or services, plans and business risks.+ read full definition
• the prospectus
• independent review committee reports
• management reports of fund performance
• quarterly portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition disclosure

They’re available from

• the mutual fund company, and
• the System for Electronic Document Analysis and Retrieval (SEDAR).

6. Review account statements

Review your account statements to see how your investments are doing and keep track of the costs you’re paying. Then compare the performance of your stocks against your goals and the guidelines set out in your investment policy statement, if you have one.

Cost and performance disclosure requirements

The Canadian Securities Administrators are implementing new requirements to ensure all investors receive essential information about the costs and performance of their investments. Learn more about these new requirements.

7. Consult your advisor

If you have an advisor, ask them to explain why your funds’ prices have suddenly fallen or risen — and what that means for your portfolio.

8. Follow stock market news

Are we in a bear market? A bull market? Is the market up or down in general? Stock prices are affected by what’s happening in the market, not just at the companies that make up your fund. You can find lots of information at the Toronto Stock Exchange.

9. General economic news

Read the business sections of major newspapers to find out what’s happening in the economy. Are interest rates going up? What’s the inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition rate? How is the Canadian dollar doing against other currencies? Learn more about how economic factors can affect stock prices.

Warning

Don’t chase performance. Just because a fund did well last year doesn’t mean it will achieve the same return this year. Make sure it fits with your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition goals and your other investments.

Key point

How a fund has performed in the past can’t tell you how it will perform in the future. But it can give you an idea of how the fund has performed in different market conditions.

Caution

Fees reduce the return on your investment. The management fees and operating expenses (MER) paid by a fund are reflected in its published rate of return.