If you hired
someone to take care of your money, would you check to make
sure they were doing a good job?
Throw away your
shareholder reports without reading them, and you're throwing
away your main chance to find out how your money managers are
doing. After all - it is your money!
Sure, someone else has the responsibility to manage your
money, but you can keep track of it by reading the shareholder
reports for your investments.
Everything in a
shareholder report is designed to tell you whether or not your
money grew and why.
- The President's Letter gives you a "big picture" overview on
factors that affected the performance of the fund.
-
The Portfolio Manager's Report builds on the President's
Letter, explaining the reasons the fund made or lost money
and how it performed relative to the market.
Pay attention to
the reasons given for the fund's performance. Do they make
sense? If you are invested in a mutual fund: Did the fund do
well because its investment style is in favor, or poorly
because the types of equities or bonds it buys lost money as a
group? It might be that your mutual fund earned money because
all bond funds made money, or perhaps poor performance could
be explained if your fund lost money when the rest of the
market did too.
Did the manager
invest in things the fund is designed to buy? If the fund is a
large-cap growth fund, you would expect that most of the
growth would come from large-cap companies. But, if the report
says that the growth in your large-cap fund came from
small-cap value companies, that should be a red flag.
Consider the
manager's overall tone. Is the fund manager always taking the
credit for good performance but finding blame when things look
bad? Managers should be open and honest about both good and
bad returns. They will all have a mix of both during their
careers.
For an even more
detailed look at the fund's holdings, go to the "Portfolio of
Investments" section of your annual report. This is the place
to see the industries where the fund is concentrated. This
section also tells you what each holding was worth at the
review period's end. Compare reports over time and you can see
whether the manager is selling big positions, adding to a
sector, or making other changes. Do those changes fit the
manager's vision for the future?
Still hungry for more?
The tables in the back of the report tell you every last
detail of how the fund handled your money, from how much the
fund paid its managers and what accounting rules it uses to
whether more people are buying or selling shares in the fund.
It's the final part of the fund manager's report - and the
last word on what's happening to your money. |