What Is a Tear Sheet?
The term tear sheet can have different meanings depending on the industry. In the world of advertising, a tear sheet is a page that is torn from a publication to prove to a client that an advertisement has indeed been published. The military uses the term for certain memos or emails that are used to communicate messages from subordinates to superiors. In finance, a tear sheet can be used to summarize key information about individual companies or funds.
Understanding Tear Sheets
A tear sheet sometimes refers to a fund company's fact sheet or another one-page piece of marketing collateral. The term is derived from days before the internet when Standard & Poor produced one-page summary sheets for public companies. Each page is a summary and could be torn from the larger book. In the mutual fund industry today, tear sheets are sometimes called "fund fact sheets" and include information about historical performance, the key holdings in the portfolio, and asset allocations.
- In finance, a tear sheet is a one-page summary of a mutual fund or individual company.
- The tear sheet typically includes key fundamental information and a graph displaying historical performance.
- The term "tear sheet" dates back to the days when brokers would rip a page out of a larger document to show their clients.
- Today, most documents are delivered online, and many types of summaries are considered tear sheets.
- The tear sheet is different from the mutual fund prospectus, which mutual fund companies are required to give to their investors and is typically much longer than a tear sheet.
Financial advisors and brokers often provide tear sheets to prospective investors to provide insight into possible investment opportunities. The sheet typically includes information about the company, such as market capitalization, earnings, market sector, and a graph or chart of historical price movement in shares. The tear sheets can be presented one by one, or put together in a folder and left with the client.
While tear sheets date back to the old days when stockbrokers would rip individual pages out of the S&P summary book and send them to current or potential clients, most information is extracted online today. Therefore, any concise representation of a company's business fundamentals could be considered a tear sheet.
Tear Sheet vs. Prospectus
When evaluating a mutual fund, a tear sheet differs from a prospectus in that the tear sheet is usually only one or two pages and will usually contain a summary of the investment, the investment manager's benchmark, a graph showing historical performance, a few statistics (such as 3-year or 5-year alpha and standard deviation), and some information about the fund company managing the investment.
A mutual fund prospectus is a much longer document. It details the strategy and investment objectives of the fund. The prospectus also includes information about the portfolio managers, the fund company, historical performance, and other financial information. It is available directly from a fund company by contacting them by email, mail, or over the phone.
The prospectus must be provided to an investor at or before the time of investment in a fund. Although many brokers or fund companies use tear sheets for marketing their products, it is not required that one be provided to a prospective investor. The prospectus, on the other hand, is required by law.