Law Commons^™

Mutual Fund Performance Advertising: Inherently And Materially Misleading?, Ahmed E. Taha, Alan Palmiter

Ahmed E Taha

Mutual fund companies routinely advertise the past returns of their strong-performing, actively-managed equity funds. These performance advertisements imply that the advertised high past returns are likely to continue. Indeed, investors flock to these funds despite high past returns being a poor predictor of high future returns. Thus, fund performance advertising is inherently and materially misleading and violates federal securities antifraud standards. In addition, the SEC-mandated warning in these advertisements that “past performance does not guarantee future results” fails to temper investors’ focus on past returns.

The SEC should do more to prevent investors from being misled by fund performance advertisements. …