FUNDAMENTALS. A Guide for Reviewing Your Fund Information

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Norah Day
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1 FUNDAMENTALS A Guide for Reviewing Your Fund Information Welcome! Lipper is proud to offer you the information you ll need to make informed decisions when selecting from your plan s investment options. Lipper, a Thomson Reuters company, is a global leader in supplying mutual fund information, analytical tools, and commentary. Lipper's benchmarking and classifications are widely recognized as industry standards by asset managers, fund companies, and financial intermediaries. Our reliable fund data, fund awards designations, and ratings information provide valued insight to advisors, media, and individual investors. In an effort to simplify the investing process, the Research staff at Lipper offers their insights on several features available to you. Fund Detail Pages Working hand in hand with Aon Hewitt, Lipper has developed a superior suite of web pages for you to access your 401(k) investment information via your plan s web site. These Fund Detail Pages will offer you the relevant fund information you need to know to make informed investment decisions. From standard information like fund returns, fees, and expenses, to Lipper s proprietary ratings data and classifications, these Fund Detail Pages are designed to arm you with the financial information you need to choose the funds that are right for you. The Fund Detail Pages are built in a tabular format, leading off with an Overview page that gives you snapshots of key data relevant to the fund you are researching. From this page, it s easy to navigate and click through six more tabs of detailed data that allow you to target the fund components that matter most to YOU. Helpful links to an online glossary and a print function are designed to make your decision making process more user friendly.

Key Features The Overview Tab At Lipper we believe making solid investing decisions starts with sensible organization and up-to-date information.

Lipper s definition of what constitutes a large-cap growth strategy (or any other investment strategy) may differ from how that manager describes it, which reflects Lipper s independent, consistent,

2 Key Features The Overview Tab At Lipper we believe making solid investing decisions starts with sensible organization and up-to-date information. The Lipper Classification groups similar funds together in order to make comparisons simple, smart, and meaningful. In this example, the International Large-Cap Growth classification is defined. Lipper s definition of what constitutes a large-cap growth strategy (or any other investment strategy) may differ from how that manager describes it, which reflects Lipper s independent, consistent, and transparent system. Lipper s fund ratings system evaluates funds against their classification peers over 3-, 5-, and 10-year periods every month. While Total Return the performance received by investors is an important consideration, the Consistent Return rating measures how appropriately a fund achieved its returns. For example, a fund that took a lot of risk and achieved higher returns would receive a better rating than one that took a lot of risk and realized much lower returns. In this example, a rating of 4 means this fund is aboveaverage when it comes to producing returns for the amount of risk. Preservation, on the other hand, looks only at how well a fund avoided losses relative to a much broader peer group (all equity funds or all bond funds, for example) and the Expense rating helps investors compare the ongoing expense of running the fund against similar funds (a higher rating here means lower ongoing expenses). The Relative Risk of each fund is demonstrated by a speedometer: the more up-and-down performance a fund has generated the more we consider it risky. The term aggressive typically describes investors with long investing horizons, but it may also describe an investor who feels they need to take on more risk in order to realize their investing goals. The riskiness of each fund is measured relative to all other funds. Now let s take a look at each tab to learn more.

The Performance Tab One chart that is frequently used and sometimes misunderstood is the Growth of $10,000 Investment chart.

the appearance that the fund always outperforms (or underperforms) the group average or an index. It is important to know that such consistency is very difficult to achieve.

Here, it s important to note that time periods over one year are annualized, which is a calculation to demonstrate a compounded (or reinvested) rate of return and is not what the fund actually earned

3 The Performance Tab One chart that is frequently used and sometimes misunderstood is the Growth of $10,000 Investment chart. Because this chart shows compounded returns, one very good year of outperforming the average (or one bad year of underperforming it) can be telegraphed forward into a large gap at the end and give the appearance that the fund always outperforms (or underperforms) the group average or an index. It is important to know that such consistency is very difficult to achieve. The Standardized Returns table compares the fund with one or more common benchmarks in this case, the Russell 1000 Value Index. Here, it s important to note that time periods over one year are annualized, which is a calculation to demonstrate a compounded (or reinvested) rate of return and is not what the fund actually earned each year, which can be found in the Calendar Year Returns table. Calendar Year Returns show the actual performance realized by investors that owned the fund for the full year. A comparable index is included to help you evaluate the fund s success. The Lipper Ratings Tab Lipper makes its suite of ratings available to you. On the Fund Ratings tab investors can see four different ratings on each fund over three different periods plus an overall rating. In Lipper s fund ratings system a score of 5 is the best and 1 is the worst.

The Fees Tab The Fees tab begins with the date of the fund s latest annual report (the Expense Date), which is the source of all expense data. Under that is the Expenses Per $1,000 Investment.

00 annually for each $1,000 they invested. This is not an out-of-pocket expense or a bill (you ll never have those in an investment fund).

4 The Fees Tab The Fees tab begins with the date of the fund s latest annual report (the Expense Date), which is the source of all expense data. Under that is the Expenses Per $1,000 Investment. When it comes to tracking the cost of running your investment fund, the Expenses Per $1,000 Investment figure is simple: in this case, the fund cost investors $2.00 annually for each $1,000 they invested. This is not an out-of-pocket expense or a bill (you ll never have those in an investment fund). But it is a way to see how much it costs to support the investment staff, trading expenses, and all other administrative functions associated with operating the fund. All expenses are taken out of the fund s assets and lower the returns provided to investors. Another way of understanding expenses is with the Total Expense Ratio. Here, you ll see the average cost of running your fund expressed in percentage terms. In this example the fund s expenses will cost investors 0.20% of their invested assets per year. This value is directly related to the Expenses Per $1,000 Investment. Both Gross Expense and Net Expense versions are presented to you; in most cases they are the same but some funds will waive (not charge) a portion of expenses. This will cause the Net Expense figures (what investors ultimately pay) to be lower than the Gross Expense. The Risk Tab This section introduces a chart called Best & Worst 3-Months Over the Last 3-Years. Here, investors should note the scale of the numbers in the red and green columns. The red column is this fund s worst three-month return in the past 36 months (-12.54%) and the green column is the fund s best three-month return in the past 36 months (+18.93%).

The Portfolio Tab Your plan s funds are a cost-effective means of owning many different assets, such as stocks and bonds, and are professionally managed.

5 Keep in mind that losses are not always made up quickly. It s often helpful to compare the timing of your funds best and worst performance dates. The more they differ the better diversified is the portfolio. The Portfolio Tab Your plan s funds are a cost-effective means of owning many different assets, such as stocks and bonds, and are professionally managed. Your plan s funds also must disclose their holdings on a regular basis and you can see what your fund owns on the Portfolio tab. While there could be hundreds even thousands of stocks or bonds in your fund, a giant list probably wouldn t help you much so Lipper distills the portfolio holdings down to reasonable pieces. The top section here is Asset Allocations, which shows you (in percentage terms) how much your fund invests in four broad categories of investments: Equity (another word for stocks), Bonds, Cash, and Other. If the fund, like the one in this example, does not own any bonds that category is not shown. The other two sections, Top Industries and Geographic Breakdown, reflect the types of businesses and their country of headquarters within the equity portion of the fund. The Management Tab The last tab we ll look at is labeled Management. Here, four sections devoted to Investment Policy, Lipper Classification, Fund Facts, and Fund Management are described. The Investment Policy section has three subsections: Objective is a brief description of what the fund intends to accomplish in very broad terms. The Strategy describes in more concrete terms how the manager intends to invest the fund s assets and what types of securities you should expect to see in the portfolio. The Risk section describes some of the challenges the manager of your fund may face in their attempts to improve the value of the fund. Bear in mind that all funds have some degree of risk and none of them are insured against loss by the U.S. government.

manager s Strategy description or even the name of the fund.

6 The Lipper Classification section is the definition of the category in which they ve been placed by Lipper. Because Lipper performs its own independent analysis of the fund s objective, strategy, and (in some cases) portfolio, the classification assigned by Lipper may not completely agree with the fund manager s Strategy description or even the name of the fund. For example, a fund s strategy may describe buying undervalued stocks, yet instead of placing the fund in a Value classification Lipper s analysis reveals the fund is more aptly described as a Core-type fund, with a balance of value and growth stocks. Other examples could be found among bond funds, where definitions of short-term, intermediate-term, and long-term bonds may differ between bond fund managers and Lipper. The Fund Facts section contains the full name of the fund, an indentifying code called a CUSIP (if applicable), the assets type (Equity, Mixed- Asset, or Bond), and the Inception Date or the date this share class was first available for purchase. The last section, Fund Management, shows the names of the fund s manager(s) and the year they began working for this fund. Below that is the physical address of the fund management company. Be aware that buying and selling correspondence should be done through your plan administrator and not directly with the fund company. For those that prefer a paper copy of the Fund Detail Pages the View All tab will format the on-screen pages into a printer-friendly format allowing you to print the data from ALL tabs at once. The Print button, located to the immediate right of the View All tab, allows you to print the select tab that you are viewing at that moment, giving you instant hard copy access to only the specific data elements that you require. There is also a Glossary available that explains terms used in the Fund Detail Pages that may be unfamiliar to you and a Disclosure section that provides required statements from Lipper and Aon Hewitt.

As our brand migration will be gradual, you will see traces of our past through documentation, videos, and digital platforms.

As our brand migration will be gradual, you will see traces of our past through documentation, videos, and digital platforms. We are now Refinitiv, formerly the Financial and Risk business of Thomson Reuters. We ve set a bold course for the future both ours and yours and are introducing our new brand to the world. As our brand