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How to Read and Evaluate a Fund's Annual Report: What to Look For
Key takeaways
- The key document for an ETF is the KIID (Key Investor Information Document) — two pages containing everything essential.
- TER (Total Expense Ratio) is the only fee shown in the KIID, but not all costs — also watch for transaction costs within the fund.
- In the "Investment objective" section, check whether the fund tracks the index precisely or with deviations.
- Tracking error tells you how closely the fund replicates its benchmark.
- The performance table in the annual report includes dividends — compare total return, not just price.
A fund's annual report is a mandatory document from the management company that describes in detail the investment strategy, performance, holdings, and costs of the fund for the past year. Reading all of it is not necessary — you just need to know where to look.
KIID: the two pages you actually read
Every UCITS ETF must have a KIID (Key Investor Information Document) — a standardised two-page document. It contains: investment objective, risk and reward profile (scale 1–7), historical annual performance, fees (TER), and practical information. The KIID is standardised by law — it can be directly compared across different funds. Since 2023, the KIID has been replaced for retail investors by the KID (PRIIPs document) — both can be found on the manager's website. More on choosing funds in the article why UCITS ETFs.
What to track in the annual report
- Tracking error: the difference between the fund's return and the index return. Ideally below 0.5% per year.
- Tracking difference: the cumulative deviation over the year — different from tracking error. A fund can have a low tracking error but still systematically lag.
- Holdings: list of the largest positions. Does it match the composition of the index the fund tracks?
- Securities lending: the fund may lend out securities and earn from it. These revenues reduce effective costs — this is generally fine.
Where to find the documents
On the management company's website (iShares, Vanguard, Xtrackers, Amundi) you will find a Documents or Fund Literature section for each ETF. For quick comparison of multiple funds use justETF or ETF.com. The annual report is typically published 4–6 months after the end of the financial year. Link this to your annual portfolio review.
FAQ
What is TER and why does it matter?
TER (Total Expense Ratio) is the fund's total annual cost expressed as a percentage — it covers the management fee, administration, and custodian costs. For large ETFs it ranges from 0.03% to 0.50%. Even a seemingly small difference of 0.2% erases tens of thousands of crowns over 20 years.
What is tracking error?
Tracking error measures the volatility of the difference between the fund's return and the benchmark index return. It shows how consistently the fund replicates the index. A low tracking error does not mean the fund does not underperform — it measures consistency, not the magnitude of the deviation.
Do I need to read the entire annual report?
No. For the average passive investor the KIID (two pages) at the time of fund selection and a brief check of tracking difference and TER in the annual report is enough. The full report is aimed primarily at institutional investors.