Past Performance Presentation in Fund Facts

This article was originally published in the Investment Funds Practitioner in April 2015.

Under the "How has this fund performed?" section of the Fund Facts, mutual funds are required to provide disclosure of past performance. The form requires inclusion of a year-by-year return chart, a best and worst 3-month return chart, and the average annual return for the mutual fund. In the course of our prospectus reviews, we have noticed that there are certain scenarios that are not contemplated by the form requirements, which could lead to inconsistent or unclear disclosure.

The Fund Facts is required to be prepared for each class or series of a mutual fund. Occasionally, we encounter situations where certain classes or series of a fund have had periods during which no shares or units were outstanding. In such circumstances, it may not be possible to show performance for a complete calendar year, or to calculate an average annual return since there will be gap periods during which the class or series would not have had any assets (asset gaps).

In order to maximize the utility of the Fund Facts for investors, staff have been asking fund managers to consider alternative approaches to the presentation of past performance. For example, in situations where a class or series of a mutual fund experiences periods where there are asset gaps, some fund managers have used the performance record of another class or series of the mutual fund as a "proxy" for the missing performance information. In selecting the proxy class or series, the fund manager should ensure that the fees are not lower than those of the class or series with the asset gap. In addition, the proxy class or series should not have any special features that would cause a material difference in performance (e.g., currency hedging).

Where a fund manager does adopt an alternative approach to deal with any asset gap issues, staff would expect the Fund Facts to include a notation indicating that the performance of a proxy class or series has been presented.