How to Read a Fund Profile

How to read a fund’s profile page.  This is a supplement to “How to Invest” and “My Investments”.  Updated April 1, 2024.

For investing in a fund, the sole important information you need to know is what kind of fund it is (stock or bond? index fund or not?) and its expense ratio.

However, if you are curious in learning more about a fund, here is a tour of other interesting information on a fund’s profile page, along with guidelines for how to interpret them.

Our example will be the profile page of the Vanguard Total Stock Market Index Fund.  Be aware that the profiles of different funds will show different types of information.  For example, even the profile page for the ETF version of this fund will not show the same pieces of information described here.  [Note: the layout of the linked example fund profile page has changed since the content below was written.  However, the definitions of financial terms in the guide below should still be instructive.]

We will walk through each of the following sections, shown as clickable tabs near the top of the fund profile page: “Overview,” “Price & Performance,” “Portfolio & Management,” “Fees & Minimums,” and “Distributions.”  In the rest of this piece, terms that appear in quotes correspond to terms also found on the fund profile page.  If any of the information here is out of date, please let me know at the bottom of this page.

Overview

This is a summary section that shows information highlights from each of the other sections.  Therefore, we’ll move on to descriptions of the other sections.

Price & Performance

Price

The “price” of one share of the fund is shown for the current date, as well as historical information on how the share price has changed since the previous business day, over the past few dates, and over the past year (52 weeks).  For a mutual fund, you can pay less attention to price information because you can invest any amount of money you choose.  However, for an ETF, the share’s current price is important because you can only buy whole numbers of shares.

The “SEC yield” is an estimate of the fund’s future payouts (i.e., dividends) after one year, based on the fund’s performance in the last month.  “SEC” stands for the U.S. Securities and Exchange Commission, which requires all investment companies to calculate the SEC yield using the same formula for their funds.  Therefore, you can use this number as a standardized way to compare funds’ potential future payouts across investment companies.

Performance

The “growth” chart shows, if you had put $10,000 into this fund a number of years ago and kept reinvesting the dividends, how much your investment would be worth today.

The “average annual returns” are different estimates of the fund’s annual percentage return, calculated based on different numbers of years going back into the past, all the way back to the fund’s “inception” (the year it was started).  “After-tax returns” are lower return values that take into account the fact that, for a regular investment account, you have to pay taxes every year on “distributions” (i.e., dividends), as well as on the capital gains you earn when you finally sell your shares.  Although after-tax returns are meant to be more realistic, it does not take into account your individual tax situation, such as your specific tax bracket and your state’s tax rates.

These past return values cannot be used to predict the fund’s future returns.  The fact that they differ greatly based on the number of past years used to calculate them should tell you how unreliable they are.  The only thing you can tell from past returns is how “volatile” the fund is, meaning how unstable its performance is over time.

Portfolio & Management

The “stock style” box, which looks like a tic-tac-toe box with one square highlighted, tells you two things about the companies that make up this fund: their “market cap” (“small,” “medium,” or “large”) and their earnings “style” (“value,” “blend,” or “growth”).

A company’s market cap, short for market capitalization, is how much all its stock shares are worth.  For example, a company whose shares are worth $1 and has 100 shares available on the stock market has a market cap of $100.  Although there is no official definition, “small-cap” companies generally have market caps of $300 million to $2 billion, “medium-cap” companies have market caps of $2 billion to $10 billion, and “large-cap” companies have market caps of at least $10 billion.  Note that even if a stock index fund contains a mix of companies with different market caps, it may be described as a large-cap fund because so much of the fund’s monetary value lies in its large-cap companies.

Shares of large-cap companies – like Wal-Mart, Johnson & Johnson, and Intel – are considered to be “value” stocks: the price of the shares are not expected to increase greatly, but they will provide steady profits (i.e., the investor can expect smaller capital gains, but steady dividends).  Shares of small-cap companies – like young startups – are considered to be “growth” stocks: their share price may change dramatically, and steady profits are not guaranteed (i.e., the investor may see large capital gains, at risk of unsteady dividends or even bankruptcy).  Thus, a fund can be described as having value or growth stocks, or a “blend” of the two.

“Equity characteristics” are then listed for the fund, which give more information on its holdings.  Two interesting numbers are the “price/earnings” and “price/book” ratios.  The price/earnings ratio is the price of one share divided by its profits (i.e., dividends): a high ratio indicates that a company’s stock is highly valued – whether or not this is a good thing – compared to how much profit it actually generates.  The price/book ratio is the price of one share divided by how much that share should be worth if it was based on the company’s actual value according to their accounting books (taking into account its assets, debts, etc.).  A high price/book ratio means that a company is valued higher on the stock market than it is actually worth – again, whether or not this is a good thing.  The ratios for a fund are the weighted averages of the ratios of the companies that make up the fund.

The “equity sector diversification” shows how much of the fund lie in different types of industries.  The “month-end ten largest holdings” are also shown, which are the ten companies in the fund with the largest market caps as of the end of the previous month.  There is also a link to see the full list of all the companies held by the fund.

“Historic volatility measures” such as “R-squared” and “beta” define, especially for an index fund, how well the fund matches the behavior of its benchmark (see the insert “What is an index fund?” above for the definition of a benchmark).  An R-squared value close to 1 means that the fund’s behavior closely matches that of its benchmark: when the benchmark goes up in value, the fund does too, and vice versa.  Then, the beta value shows the size of the fund’s changes compared to its benchmark’s: a beta value greater than 1 means that, when the fund and its benchmark go up in value, the fund’s value goes up a larger amount than its benchmark’s does (and when the fund goes down in value, the loss is smaller than that of its benchmark’s).  Conversely, a beta value smaller than 1 means that when the fund and its benchmark go up in value, the fund’s value goes up a smaller amount that the benchmark’s does (and likewise when their values go down).

Fees & Minimums

This section shows the all-important expense ratio, as well as – for a mutual fund – minimum required investment amounts for different types of accounts (regular investment, retirement, college savings, etc.).  Any other applicable fees are also listed; remember that you can avoid Vanguard’s annual account service fee by signing up for e-delivery of documents.

Distributions

This shows how often dividends are paid out (for example, “quarterly” means four times a year), as well as the dates and amounts per share for past dividends.  If you set your fund to reinvest its dividends, the share price at which the dividends were used to buy more shares is also shown.

In the same way that you can have capital gains or losses if you sell shares at a higher or lower price than when you bought them, a fund itself can have capital gains or losses because the fund’s manager decided to sell off some of the fund’s stock holdings.  Therefore, shown are the fund’s “realized capital gains/loss” (from holdings already sold) and “unrealized appreciation/depreciation” (from price changes in the unsold holdings, which would turn into capital gains/loss if they were sold) so far for the current year.  An index fund’s realized capital gains/loss should be small compared to its unrealized appreciation/depreciation – this is because an index fund has low “turnover,” meaning that the fund manager is not frequently selling off stock holdings in the fund, but only enough for it to match its benchmark.  This is a good thing, because it minimizes the taxes you have to pay every year on a fund’s realized capital gains in a regular investment account.