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March 1, 2024

Friday Facts: Beware Fund Names Can Create False Expectations

by Detlef Glow.

As a professional market observer, you know that the marketing departments are sometimes very creative when it comes to the name for a fund. This is especially true in the segment of sustainable investment themes.

But can retail investors distinguish between a marketing driven fund name and the reality of investment portfolio? I don’t think so. The fact that misleading fund names might be used to attract retail investors money should a concern for market watch dogs, since these investors are often not able to understand the language used in the respective sales documents and/or can’t evaluate if the portfolio holdings do really fulfill the expectations raised by the fund name or if these holdings are only best in class. The latter would mean that the portfolio holdings do less harm than their peers with regard to the investment objective of the fund, but they still do harm, which means they may still be a part of the problem and not the solution.

With regard to the above, the marketing departments of asset management companies should be held responsible if the fund does not deliver on the expectations of the investors. Not every theme which sounds good or looks good on paper can be used as investment objective since the proposed implicit investment goal can’t be reached by investing in stocks or bonds. So, investors need to think twice if the investment goal can be reached by investing in companies which are seeking growth and returns before buying, for example, a sustainability themed fund/ETF which fund name suggests that the fund helps to fix intangible problems.

 

The views expressed are the views of the author and not necessarily those of LSEG.

This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

 

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