Giving Compass' Take:
- Charities Aid Foundation presents a guide to understanding fund performance, explaining tracking, targets, benchmarks, assessing fair value, and more.
- What strategies can nonprofits use to strategically and effectively invest in and monitor funds?
- Learn more about trends and topics related to best practices in giving.
- Search Guide to Good for purpose-driven nonprofits in your area.
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Investing without a clear plan is like setting sail without a compass. To measure success, it is crucial to understand how a fund is performing — and whether it is delivering on its goals. That is where targets, benchmarks, and fair value assessments come in. Let us break it down to better understand fund performance.
What Is a Fund Target?
A fund target sets out what a fund aims to achieve — typically over a set period. For example, a target might be to grow your investment above inflation (as measured by the Consumer Prices Index) over rolling 10-year periods.
In other words, the fund manager expects the value of your investment will be worth what you invested, plus at least the value of inflation 10 years from the date of investment. The ‘rolling 10-year periods’ means that this target applies to any 10-year period the fund should achieve this aim.
What Is a Benchmark?
When understanding fund performance, a benchmark is designed to provide you with a measure against which to judge the success of your investment. If you are investing solely in the UK stock market, a typical benchmark might be the FTSE All-Share, which reflects the performance of all publicly listed stocks in the UK.
If your fund outperforms the benchmark, it means you have done better than the market and your confidence in the manager has been well placed.
Many funds use both a benchmark and a target, aiming to outperform the market and meet long-term goals.
What Is a Fair Value Assessment?
Managers of many publicly quoted investment funds are now required to issue an annual ‘fair value’ assessment. This gives investors an overview on how well the fund is meeting its targets, the costs involved, and the quality of service provided.
Understanding Fund Performance: How To Track Your Fund
There are several ways to monitor your investment. For funds regulated by the Financial Conduct Authority in the UK, funds must provide updates by way of regular reporting in their Accounts. You will also get regular valuations, although these typically show the current value of the fund rather than its overall performance.
Factsheets and Fund Data
To assess performance, investors often use fund factsheets, or similar information available on fund managers’ websites. This data is very useful in relation to your fund.
Read the full article about fund performance at Charities Aid Foundation.