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The Financial Markets Authority (FMA) is clamping down on investment funds advertising phenomenal returns for the past year, as they can mislead investors.
It says advertising by some funds had excluded the sharp downturn in global equity markets brought in early March last year caused by the pandemic, and only shows the strong recovery which began in April.
For example, the NZX top 50 grew by nearly 24 percent in the year to 31 March but after shifting the performance period back one month, the local sharemarket was only up 7.7 percent.
FMA director of investment management Paul Gregory said the messaging could inflate investors expectations, gave the impression that the performance was repeatable and oversold fund manager’s skills.
The FMA had asked investment funds of all types to avoid advertising their performance for the year to 31 March and would keep on eye on those who failed to comply.
This table shows the comparative performance of global indices when the performance period is shifted by a month.
“We’ll be monitoring them very carefully and going to them and saying, how are you confident that marketing or advertising these extraordinary returns in isolation and no context, how are you comfortable that does not fall afoul of fair dealing provisions,” Gregory said.
The provisions prohibit unsubstantiated claims from being made about financial products and services.
Gregory said the FMA would also check what steps investment managers had taken to look after investors who had joined the scheme during the promotional period.
However, the uptick in questionable advertising practices was relatively isolated and some fund managers had already confirmed they would not be promoting their performance over 12 months to 31 March, he said.