Investor Education

Investor Education
Investor education

Implications of Investing

Analyzing a fund

Investing in mutual funds is about more than just the numbers. It’s important to feel as comfortable about the fund itself as you are about its performance. This section helps explain different things to consider as you analyze potential mutual fund investments.

In this section:

If you find yourself needing surgery, chances are, you’ll look around for a surgeon who is experienced in the procedure you need. The same mindset should apply to your investing goals. When you’re ready to invest in mutual funds, look for a mutual fund company and a portfolio manager with experience in the area you’re looking for.

Mutual fund companies come in all sizes. Some of the largest offer hundreds of mutual funds of all types and styles, while smaller fund companies may offer only a few very specialized funds. Your important consideration is to find both the fund and an approach that align with your goals. When you are analyzing a mutual fund, go to the prospectus, annual report, or the mutual fund company’s web site to learn:

  • How long the company has been in business
  • Its philosophy toward investing
  • Its experience in the type and style of fund you’re considering (growth, value, small cap, global, etc.)
  • Active vs. passive management approach 

Wasatch Advisors, the investment advisor to Wasatch Funds, has more than 33 years of experience in investing. Click here to learn more about Wasatch Funds' history and The Wasatch Way of investing.

Equally important to a mutual fund company’s experience is the competence of a mutual fund’s portfolio managers and the research team that supports them. In an actively managed fund, the portfolio managers should be continually analyzing the fund’s holdings, researching the market, and making informed decisions that will further the fund’s overall objective. You can learn about a management team’s experience, activity and leadership in the fund's prospectus, Statement of Additional Information and often on the mutual fund company’s web site. While there, look for:
  • Industry experience
  • Education
  • Experience in that type of fund
  • Performance of funds managed previously
  • Tenure on the fund and at the company
  • Research approach
  • Special qualifications for that fund (e.g. familiarity with start-ups for technology funds, speaking a foreign language for international funds, etc.)
  • Managers that have invested a portion of their own net worth in the fund

    Click here to view the bios of the Wasatch Funds portfolio managers.

Funds that are actively managed rely on research completed by the portfolio manager and team to select the funds’ holdings. As you might expect, the deeper the research, the more details about a prospective holding a portfolio manager will uncover. You can read a fund’s prospectus and annual report to determine how the company approaches research.

At Wasatch Funds, we believe in deep due diligence. Our portfolio managers not only delve into specialized industry publications and resources, they personally visit companies of interest, meet with their management teams, and even visit the competition. We aim to uncover a level of detail that will provide the best support for intelligent portfolio decisions.

Learn more about our research approach in the Wasatch Way of investing here.

One of the first lessons in investing is that the market has its ups and downs. Therefore, it’s important not to judge a fund on a week’s or month’s performance. Use a fund’s prospectus to see its performance over one year, five years, and better yet, 10 years. A long-term view may give you a better idea of how the fund can match your investment objectives.

At Wasatch, we think of long-term as 10 years or more. When it comes to performance, our goal is to beat a fund's benchmark over the long term. We want shareholders to have confidence that when they return to an investment after 10 years, they will find good, solid returns. We don’t expect to be the best performing fund out there, but we aim to be consistently above average over the long term.

To see our performance track record, select a Wasatch Fund and click on its Performance tab.

The net asset value, or NAV, is the price of one share of a fund at the end of a trading day. In technical terms, it is the market value of a mutual fund’s holdings minus its expenses, divided by the number of shares outstanding.

An NAV is a common number you’ll see when looking at mutual funds, as it gives you the price you would buy or sell a share of the mutual fund on any given day. Unlike stocks that can be traded at different prices during a business day, traditional mutual funds are priced only once per day and all purchases and sales of a fund's shares made at that price. However, tracking a fund’s NAV every day is not a very good measure of performance because it is incomplete. It’s also important to look at the fund’s dividends, distributions, and long-term performance. A fund’s average annual performance (1, 5, and 10 year returns) is the best way to evaluate a fund’s performance because it includes the effect of a fund’s dividends and distributions on its share price.

Click here to compare Wasatch Funds using NAVs and more.

The fact that you’re interested in a mutual fund doesn’t always mean you can purchase it. When a fund is open, it simply means that shares of that fund may be purchased. But a fund that is closed isn’t necessarily bad news.

Some fund managers choose to close a fund in order to control the number of shares and how much is invested in a fund. This is often good news for existing investors; if the fund does well, there are fewer shareholders among which the total value is divided. Closing a fund also may make its assets more manageable for the fund manager. A fund that has continual asset growth may become unwieldy and more difficult to oversee.

Sometimes mutual funds have a “soft” open or closed status, meaning that a fund is open only to investors who already own shares in a fund, but not to new investors.

You can check the status of a fund in its annual report or prospectus. To view the open/closed status of Wasatch Funds, click here.

Turnover is a measure of the buying and selling that goes on in a mutual fund, typically calculated over a year’s time. In its most basic sense, it tells you how frequently a fund manager is changing the holdings within a fund. The turnover rate is the percentage of the portfolio that is bought and sold each year.

Turnover is an important measure to look at when analyzing a fund because it affects your taxes. Unless you own the fund in a tax-deferred account such as an IRA or 401k plan, every turnover transaction represents capital gain or loss on which you will be taxed. Turnover also increases trading costs, which can ultimately hurt your performance in the fund. Some experts suggest that investors be wary of funds that habitually turnover a high percentage of the portfolio. While there are market periods that may warrant higher turnover. Continually high turnover may indicate uncertainty in a manager’s investment thesis.

Wasatch Funds focuses on long-term investing, therefore, our funds usually have a lower turnover rate. Portfolio managers carefully select holdings that will perform over a long period of time and as such, they sell these shares less frequently.

You can learn the turnover rate of a fund in its prospectus and annual report. To see the turnover rates of Wasatch Funds, see our Fact SheetsProspectus, Annual Report, or the Portfolio Details tab after selecting any of the Wasatch Funds.

A sector is an economic division of companies that are in related industries. For example, power and light companies are part of the Utilities sector; software and computer chip companies are part of the Technology sector.

Sometimes the strategy of a mutual fund is closely tied to a market sector; other times, a fund seeks greater balance by holding a wide variety of sectors. This should be an important consideration when you are selecting a mutual fund. A mutual fund that focuses on one sector carries higher risk, as it may follow the ups (or downs) of that market, whereas a diversified mutual fund, or a mutual fund holding several different sectors, offers some protection from risk.

You can learn what sectors your fund is exposed to in the prospectus. To learn about the sectors in a Wasatch Fund, see our Prospectus here or click on the Portfolio Details tab after selecting any of the Wasatch Funds.