Total Return: Are Investors Being Misled?
by John Schroy filed under Fund Shares, Fund Managers, Investment Theory
Mutual funds are sold primarily on the basis of ‘performance’ measured by historical ‘total return’.
The famous Morningstar rating system is based on ‘total return’, in this case ‘risk-adjusted total return’ relative to funds of the same asset category.
The average American mutual fund investor is accumulating resources for retirement, say 20 or 30 years hence. The typical owner of mutual funds is unsophisticated and does not delve deeply into the significance of Morningstar ratings or total return figures.
The SEC allows promoters of mutual funds to trumpet historical ‘total returns’ as long as there is a disclaimer that “past performance is not necessarily indicative of future performance”.
A question worth considering is this: “Are investors being mislead by statistics on total return?”
