Cracking down on misleading fund names

It is good to see the FSA addressing the issue of misleading fund names.

Their latest quarterly consultation explains that some investors might believe the name of their funds imply a guarantee.

“A number of funds currently employ descriptions in their fund name, investment objectives or fund literature that can imply a degree of capital protection or a guarantee of positive returns, where no such guarantee may exist. Descriptions and names of this type include the terms ‘absolute return’ and ‘total return’.”

We have a particular issue with funds which target an absolute return using the label ‘absolute return’, as this implies an outcome to the investor.

54 funds in the relevant IMA sectors currently include the terms ‘absolute return’ or ‘total return’ in the name of their funds.

Better disclosure should help investors avoid being misled by these names, although until such fund names are banned entirely there is a risk investors will believe they are guaranteed an absolute return.

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