Fund Focus: plugging the information gap

I have always been pretty agnostic when it comes to the type of fund investors prefer.

Investment trusts enjoy plenty of lobbying on their behalf but do come with various drawbacks versus open-ended funds, from greater complexity to higher volatility – and there are many instances where it’s best not to hold them. 

And there are, of course, different pros and cons to active and passive funds – and reasons to hold both.

But it’s worth highlighting one area where investment trusts and exchange-traded funds (ETFs) are very often better than open-ended funds. That’s simple disclosure - and how much a fund will tell you about what it holds.

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Both a fund and a trust will issue monthly factsheets which (normally) tell you a handful of useful things: what their top 10 holdings are and how much of the portfolio each represents, the fee a fund charges, its performance and exposure to different sectors. We also get plenty of other information, be it who manages the fund or how many holdings it has.

That’s a good start, but open-ended funds are often more limited when it comes to breaking out what they hold. They don’t tend to disclose their full holding lists that readily.

By contrast, ETFs do this pretty widely, while trusts will at the very least do it via their half- and full-year results. Some, such as Alliance Witan Ord (LSE:ALW), break out their full list of holdings more regularly, if on a delayed basis.

Open-ended funds do have their own financial reports but these can be hard to find and are sometimes less forthcoming with detail.

That can make analysing an open-ended fund a tricky task, and a frustrating one. But there are ways to mitigate this, and to stay informed even if your fund provider shares less information than you would like.

Unpicking a fund

First it’s worth noting that some fund providers do offer extensive levels of information, even if they don’t break out their full holdings.

I’ve always been a fan of Fidelity’s monthly factsheets, which tend to provide commentary as well as extensive details such as a fund’s big overweight and underweight positions relative to the market.

But not all firms are quite so forthcoming. Famously Fundsmith Equity I Acc (B41YBW7) doesn’t break out the size of its positions, and nor does rival WS Blue Whale Growth I Sterling Acc (BD6PG56). 

Investors do, therefore, need to be pretty resourceful when trying to unpick a portfolio.

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The likes of Fundsmith do break down their top 10 position sizes to Morningstar, on a delayed basis. The “portfolio” section of Morningstar’s webpage for the fund shows that its top position, in Alphabet Inc Class A (NASDAQ:GOOGL), made up around 7% of the fund at the end of May.

Investors otherwise need to get creative. Sometimes a company will run another version of a fund in a different domicile, and have to provide better disclosure there. 

Fundsmith fans can, for example, look at reports for the Sicav version of the fund, domiciled in Europe, to have a fuller list of holdings.

And, as always, commentaries are useful – although these very much depend on the manager. 

To their credit, both Fundsmith and Blue Whale do put out plenty of material discussing portfolio changes and their latest thinking, with Fundsmith’s Terry Smith writing a letter to investors twice a year.

The ETF advantage

ETFs are great in that they tend to break out full holding lists online, and these also tend to be very recent. 

You can therefore monitor what’s in a passive ETF – and if you hold an index fund instead you could always assess what it holds via disclosures from an ETF that tracks the same index.

This could be more important than we first assume, given how concentrated certain markets have become. If you want to know how prominent Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM) or the hard-charging Korean stocks have become in an emerging market ETF, that can be done pretty easily.

More pertinently investors can see how much Magnificent Seven exposure a global tracker has – and how much any Space Exploration Technologies Corp Class A (NASDAQ:SPCX) exposure grows over time. 

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That also applies to the space ETFs that have launched recently, seemingly with an eye on capitalising on SpaceX-related excitement.

Whichever fund you use, analysing it properly can take a bit of digging. Although open-ended funds, being simpler in nature, might appeal more to investors who enjoy a more hands-off approach.