Saturday, August 22, 2015

How to assess mutual fund ads

We wrote this piece over 10 years ago. The recent scuffle over investment awards in sales communications prompted us to republish the paper. The key point to remember is that these ads are sales pitches. Canadian Securities regulators help unsuspecting retail investors understand the limitations of past-performance data by requiring fund ads touting historical returns to include a warning that states “The indicated rates of return are historical annual compounded total returns including changes in unit or share value and reinvestment of all distributions and dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ” .

The Annual investment awards have one basic purpose- to market the "winners". Current research shows that most funds under perform their benchmarks over the longer term. The awards have little economic or information value for Main Street but do have potential sales value for Bay Street.They have the same value as "Free lunch" seminars at best. BE AWARE. Here's the article: Analyze fund ads for clues 


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