How to Read a Tear Sheet: What the Numbers Actually Mean

When you evaluate an investment manager or strategy, one of the primary documents you'll encounter is a tear sheet — a one or two-page summary of a strategy's performance, risk characteristics, and key statistics. They're dense with numbers, and most investors have never been taught how to read them.

This guide explains the most important figures you'll find on a tear sheet, what they actually mean, and what to watch out for when comparing managers.

What Is a Tear Sheet?

A tear sheet (sometimes called a fact sheet or strategy profile) is a standardized summary document that presents a portfolio strategy's historical performance alongside key risk and return statistics. It's designed to give a sophisticated investor enough information to evaluate the strategy without reading a full prospectus.

At Dauble+Worthington, we publish tear sheets for each of our portfolio strategies. They're available as PDF downloads on our portfolios pages. This article will help you understand exactly what you're looking at.

Performance Returns: What They Mean and What to Watch

The most prominent numbers on any tear sheet are the performance returns — typically shown as annual returns, and often annualized over 1 year, 3 years, 5 years, and 10 years (or since inception).

Net vs. gross of fees: Returns should always be presented net of management fees — meaning the fees have already been deducted. Our tear sheets present all returns net of our maximum management fee. This is important: a gross return of 12% with a 2% management fee is a net return of 10%. Always confirm whether returns are net or gross before comparing managers.

Annualized returns: Multi-year returns are almost always annualized — they represent the average compound annual growth rate, not the total return. A 3-year annualized return of 8% means the portfolio grew at the equivalent of 8% per year over that period, not that it returned 8% total.

Inception date matters: Be careful comparing strategies with different inception dates. A strategy that launched during a strong bull market will show very different performance numbers than one launched during a bear market — even if the underlying approach is identical.

Benchmark Comparison

Most tear sheets show performance alongside a benchmark — typically the S&P 500 Total Return index. The benchmark comparison answers the question: did this strategy outperform or underperform the market, and by how much?

For tactical strategies like ours, benchmark comparison is important context but not the only measure of success. A strategy designed to limit drawdowns may underperform in a strong bull market — that's expected and by design. The relevant question is: how did it perform over full market cycles that include both bull and bear markets?

Key Risk Statistics

Beyond raw returns, well-constructed tear sheets include risk statistics that tell you how the returns were achieved. Here are the most important ones:

Maximum Drawdown: The largest peak-to-trough decline in the strategy's history. This is arguably the most important single risk statistic for retirement investors. A maximum drawdown of 15% means that at some point, the portfolio fell 15% from its previous high before recovering. Compare this to the S&P 500's maximum drawdown of approximately 57% during the 2008-2009 financial crisis.

Standard Deviation: A measure of return volatility — how much the returns vary from the average. Higher standard deviation means more volatile returns. Lower standard deviation generally means a smoother ride.

Sharpe Ratio: Return per unit of risk. Calculated as the excess return (return above the risk-free rate) divided by standard deviation. A higher Sharpe ratio means you're getting more return for each unit of risk taken. Generally, a Sharpe ratio above 1.0 is considered good; above 2.0 is exceptional.

Sortino Ratio: Similar to the Sharpe ratio but only penalizes downside volatility — it doesn't count upside volatility as "risk." Many consider this a better measure for investors who care primarily about avoiding losses.

Beta and Correlation

Beta measures how much a strategy moves relative to its benchmark. A beta of 1.0 means the strategy moves in lockstep with the market. A beta of 0.7 means it typically moves 70% as much as the market — both up and down. For tactical strategies that actively manage market exposure, beta will vary over time.

Correlation measures how closely a strategy's returns track its benchmark. A correlation of 1.0 means perfect lockstep. Lower correlation suggests the strategy is adding something different from just holding the index — which may indicate genuine diversification value.

What Our Tear Sheets Show

Our tear sheets present all returns net of our maximum management fee, which means what you see is what clients actually experienced. We include annual return history, multi-period annualized returns, and comparison to the S&P 500 Total Return index.

We present maximum drawdown prominently because we believe it's the most relevant risk statistic for our client base — investors who are near or in retirement and for whom large losses carry real, lasting consequences. A strategy that limits drawdowns may not always lead the performance tables, but it gives our clients the financial and psychological stability to stay invested through difficult markets.