SEC Office of the Investor Advocate Releases Study on Fund Performance Benchmarks

The SEC’s Office of the Investor Advocate (OIAD), which represents the interests of investors, released an independent research study examining the selection and impact of mutual fund performance benchmarks. Specifically, the study examines the impact fund benchmarks have on investor decision-making using hypothetical funds. The study found “investors prioritize information on investment performance,” and therefore, investor education covering performance information and comparative benchmark information is critical. The study notes that “conditions with no benchmark and with two benchmarks minimize distortions.” Additionally, it also raises the possibility that fund complexes may “pick benchmarks that satisfy the requirements for permissible benchmarks, but are relatively poor performing as compared to other permissible benchmarks.” This showcases the fund’s performance in a more favorable way which investors may rely upon when selecting an investment. The study notes it was limited in the chosen benchmarks and funds in the experiment, and that future work should examine a broader range of benchmarks and histories of hypothetical funds.

Click here to read the SEC Office of Investor Advocate’s research study on benchmark selection.

Click here to read a recent Forum blog post highlighting an academic study of mutual fund benchmarks and performance.