How Mutual Funds Lie About Their Track Records

How Mutual Funds Lie About Their Track Records

Nice post by Josh Brown, aka the Reformed Broker, on how mutual fund companies are allowed to use the performance numbers of a previous portfolio manager to sell their funds.

Couple of points that Josh addresses that investors should be aware of (I highlighted the really important parts):

…the performance that resulted in the fund company accepting a Lipper Award on March 9th for five- and ten-year performance.  The problem with this – and the thing that investors need to know – is that these award-winning results were actually generated by Jeffrey Gundlach and his team, about 30 of whom departed TCW in December of 2009. Anyone who had been given trading authority by Gundlach or had worked closely with him, learning his process, has already followed him to his new shop, DoubleLine.

In fact, Rivelle’s first full year running the TCW Total Return portfolio without any of what Gundlach’s team had put in place construction-wise was 2011, a year during which TCW badly trailed almost all of its rivals in the mortgage backed securities fund space with a stubby 4.1% return.  This places them in only the 14th percentile of the category according to Bloomberg and below the Barclays Capital US MBS Total Return Index benchmark of 6.2%.  So not only did the new team not add to the fund’s long-term performance numbers, so far it has actually subtracted from them.

Is there any rule saying that they have to mention this?  No.  There are the standard “past performance” disclaimers and that’s all.  Which is why it’s so important that investors look past the track record and try to understand how it was generated and by whom.


This is an issue that has always bothered me and another example that shows the lack of transparency among mutual funds. I have witnessed numerous times investors picking their fund choices – whether it be in their personal brokerage account or 401k plan – by simply looking at a mutual fund’s track record. These investors believe they are hiring a talented money manager when they may in fact be hiring his or her replacement.

What makes this even worse, is that Jeffrey Gundlach (who is an industry legend) cannot advertise his past track record at his new fund!

It makes more sense for portfolio managers to be able to show performance numbers that they generated at past firms – investors are hiring the portfolio manager not the company, after all. Instead mutual fund companies are looking past their customers and clients best interests and are more focused on generating revenue for their firms.



Link to John Brown’s Article:  Lying By Omission: Mutual Funds, Track Records and Departing Managers

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