Investment Management: Performance Reporting:
Performance Presentation
Fund Performance Information Quality
Position: Information about investment fund performance is most useful when it is disseminated quickly, fairly, and widely.
Rationale: Such dissemination enables all users to comprehend and assess the fund’s performance in relation to their investment objectives and supports efficient capital markets.
Where stated: Letter to Ontario Securities Commission on Proposed National Instrument 81-106 and Companion Policy 81-106CP and Form 81-106F1 19 December 2002
Consistency of Disclosures
Position: Disclosures relating to financial and performance data must be presented in a consistent and meaningful manner.
Rationale: Without a standardized approach to such reporting, investment firms may engage in practices that hinder comparability and accuracy of data. Globalization of capital markets has created a heightened need for globally accepted reporting standards.
Where stated: Letter to Ontario Securities Commission on Proposed National Instrument 81-106 and Companion Policy 81-106CP and Form 81-106F1 19 December 2002
Marketing Format for Fund Performance Data
Position: Investment firms marketing their fund and unit trust products to investors should use a standardized format for presenting past performance.
Rationale: Standard formats prevent firms from artificially inflating the performance of their products by selecting strong periods, excluding assets such as cash, or using other distortions to calculate performance.
Where stated: Letter to FSA on Consultation Paper 183 28 October 2003
Benefits of Benchmarks
Position: Comparative benchmarks are an important part of any performance presentation standard.
Rationale: Presenting performance information in comparison with an appropriate benchmark provides investors a point of reference upon which to make informed decisions about their investment options.
Where stated: Letter to FSA on Consultation Paper 183 28 October 2003
Frequency of Calculated Fund Performance
Position: Past performance information should be calculated on the basis of geometric linking of monthly — or more frequently — returns over the course of a year, and for a 10-year period, if available, or, if not, then for the entire period during which the fund has operated.
Rationale: Accuracy of essential disclosures should not be sacrificed for the ease and convenience of preparers of the disclosures. A longer time horizon for presenting past performance will provide investors with an indication of the investment manager’s ability to weather different economic cycles.
Where stated: Letter to FSA on Consultation Paper 183 28 October 2003
Annual Reporting
Position: Investment managers in business for more than one year should present performance numbers on an annual basis; those in business for less than one year should present performance information on an actual year-to-date basis.
Rationale: This type of presentation allows investors to determine how one investment performed vis-à-vis another during the same period and reduces the temptation for firms to cherry-pick the returns from those periods that put the fund’s performance in the best light.
Where stated: Letter to FSA on Consultation Paper 183 28 October 2003
Use of Percentage Returns in Marketing Material
Position: Investment managers should present performance numbers on the basis of percentage gains and losses rather than on the basis of monetary gains and losses for a hypothetical portfolio.
Rationale: Performance presentation based on monetary terms can lead to manipulation by the presenting firm. Presentations based on percentage gains and losses, however, permits investors to compare performance across a wide variety of investment firms and funds.
Where stated: Letter to FSA on Consultation Paper 183 28 October 2003
Presentation Format
Position: Investment firms should give equal or greater prominence to standardized performance presentation data as is given to other promotional material in marketing material.
Rationale: This will prevent firms from presenting performance data in a manner that is likely to confuse investors, particularly when they attempt to compare different funds’ performance.
Where stated: Letter to FSA on Consultation Paper 183 28 October 2003