With little available data, new mutual funds might rely on window dressing to attract flows. That means creating hypothetical returns to show potential past performance based on the fund’s backfilled holdings.
“In the absence of real data, such window dressing is the only way to demonstrate that the fund managers are worth investing in,” reports Canadian Investment Review (CIR), a sister publication to Advisor.ca.
CIR is a sponsor to an upcoming presentation of a research paper that looks at the reliability of such returns.
“Turns out that the need to market through past performance often drives the portfolio compositions of new funds,” says CIR, summarizing one of the paper’s key findings.
That means buyers of new mutual funds must be extra vigilant when assessing returns.
For more details, read the full article in CIR.