By the end of January, individuals who have savings invested in mutual funds* will have received their investment statements as at December 31, 2019. These statements will allow them to see how their investments have grown over the past year, but they also provide other information about portfolio status.
The basic principle: from general to specific
An investment statement is designed somewhat like an upside-down funnel: first, it gives a very condensed view of the overall portfolio, then opens out to provide a large amount of much more detailed information. Typically, it will include the five sections below (note that different financial insitutions may use slightly different terminology and present the sections in a different order).
- asset allocation
- summary of investment activities
- investment details
- transaction details
As well, at the end of each year the statement will include two annual reports:
- the report on investment activity and performance, and
- the report on charges and compensation associated with the portfolio.
The first three sections are high level
1. Summary: a comprehensive overview
As its name suggests, the summary of investments provides a snapshot of the value of each of your accounts and the total for all accounts as at the end of the latest financial period. For comparison purposes, it also shows these values as at the end of the previous period.
2. Asset allocation: a reflection of your risk profile
This second section allows you to see how your consolidated investments are distributed among the various asset classes. A heavy weighting in equities will generally reflect a more aggressive portfolio, while a substantial concentration in fixed income securities, money market funds and guaranteed investment certificates will correspond to a more conservative portfolio. As for a balanced portfolio, it will be allocated among several asset classes in various proportions.
Since this allocation changes as the markets evolve, it could be a good idea to analyze it periodically with your mutual fund representative to ensure that it is still aligned with your risk profile.
3. Investment summary
This section simply summarizes the activity in your account during the latest period: money invested, money withdrawn, and the impact of these transactions on your balance.
For registered plans, additional information is provided, such as contributions paid into an RRSP and minimum withdrawals from an RRIF.
The next two sections are detailed
4. Investment details
Here is where you will find a complete list of all the securities held in each account, along with the type of fees associated with each. Note that if you own segregated funds or annuities, these might appear in a separate section at the end of the statement.
The number of units and price per unit of a mutual fund are shown to four decimal places instead of two. However, the book value and market value are rounded off to two decimal places.
As well, for this section, an understanding of the concept of book value could be important, especially in the context of a taxable account. The book value changes over time: it reflects the price you paid for your mutual fund units, plus all subsequent purchases or withdrawals, plus all distributions (income, dividend, capital gains) reinvested in your account by the fund. When you sell fund units, your capital gain is calculated on the basis of the market value and book value at the time of the sale.
5. Transaction details
This section lists all the transactions made on your accounts during the period.
Among these transactions, some will be made without you having to request them each time: they are distributions paid by the fund that are automatically reinvested. These distributions give you additional fund units. They are also added to your book value.
At year end: two additional reports
6. Investment activity and performance
This report, issued at the end of each year, calculates the increase or decrease in the value of your portfolio and determines your cumulative rate of return for the year.
For any account that has been open for more than one year, the rate of return is calculated using the “internal rate of return” method, which takes into account any buying and selling you did, and when you did it. This is a regulatory requirement. As a result, your personal rate of return might differ from the rate posted by the fund for the same period.
7. Charges and compensation
This report, also issued at year-end, shows the amounts paid to the firm you do business with. These amounts cover all of the firm’s advisory and administrative services.
As we can see, an investment statement may incorporate some fine points. For more specifics, don’t hesitate to contact your mutual fund representative.
* Mutual funds are offered through mutual fund representatives associated with SFL Investments Financial Services Firm.
The following sources were used to prepare this article.
Actualis, “Understanding your personal rate of return.”
Éducation Finance, “Valeur comptable d’un produit financier”; “Les distributions dans les fonds communs de placement.”
Get Smarter About Money, “Annual information about your investment performance“; “Annual information about your investment fees.”