Fund Managers Attempt to Thwart EU Ban on Past Performance Data

Asset managers urge European Union Commission to ditch proposed changes to retail fund rules

Emma Simon 20 June, 2016 | 1:05PM
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Senior executives at eight leading fund managers – including Fidelity International, BlackRock, Schroders and JP Morgan Asset Management – have written to the European Commissioner urging him to overturn a potential ban on using past performance data.

New consumer legislation, due to come into effect in 2017, is expected to prevent fund managers using this information in key customer documents. Instead fund managers will have to give guidance on how these funds might perform in future: in unfavourable, moderate and favourable economic conditions.

Fund managers argue this change risks misleading investors, and will make it harder for consumers to select potential savings products.

Other groups putting their name to this letter include AXA Investment Managers, Allianz Global Investors, Nordea Asset Management and Robeco.

This change is expected in a draft of new consumer legislation, known as PRIIPs – (or Packaged Retail and Insurance-based Investment Products regulation). This is due to be published imminently by the European Commission.

Investors Left Without Vital Information

In a letter published by The Financial Times, executives from these fund managers called for past performance data to be used alongside these future projections. They argue this would “provide historic proof of an active manager’s ability (or not) to regularly outperform the fund’s benchmark”.

They add legislation which prevents past performance data being used on key documents risks leaving consumers without the “high-quality information they deserve”.  It adds that an approach which simply estimates future projections “is not evidence based, will not help consumers and will not command respect”.

The fund managers also called for changes to the proposed methodology for calculating and disclosing transaction costs.

Jason Hollands, managing director at Tilney Bestinvest said: “Fund groups are entirely right to lobby Jonathan Hill, the European Commissioner for financial services, on this matter.

“While past performance alone should not be relied on alone to make judgements about future performance of a fund, this is nevertheless relevant factual information that shows how a fund has actually performed in particular market conditions.” He added “Removing this data would not help consumers one jot.”

Are Consumers Mislead by Performance Data?

But not everyone agrees that the amendments put forward by these fund managers will be in the interest of ordinary investors.

The FT reported that Sven Gielgold, a Green member of the European Parliament warned that the changes demanded by the asset managers “would mislead ordinary investors”.

Laith Khalaf, a senior analyst at Hargreaves Lansdown said: “It’s strange that in most walks of life we look to the past to provide us with clues to the future, yet in the investment industry doing so is bordering on the taboo.”

He added that the politicians’ concerns about past performance data stem from misuse of these figures in the past. “Part of the reluctance to use past performance data hinges on the high stock markets returns of the 1980s and 1990s which have not been replicated since, causing widespread disappointment amongst investors who bought products at the end of this period.

“There is therefore certainty some cause to caution investors that past performance data does not indicate the total returns available in future.

“However when it comes to assessing fund manager performance a long history of past performance does have some bearing on the manager’s skill, though clearly there are no guarantees and this information needs to track the manager, not necessarily the fund.”

Patrick Connolly of financial advisers Chase de Vere added: “There is no doubt that past performance numbers can be very misleading. You only need to look at the performance of AXA Framlington Biotech fund a year ago, and since then to see this clearly.”

The AXA Framlington Biotech fund delivered returns of 63% in 2013, and 45% in 2014 but has fallen 17% so far this year. It is not rated by Morningstar analysts. 

European Union Urged to Reach ‘Sensible’ Compromise

However, while Connolly understood the EU’s “misgivings” about past performance data he said “proposals put forward that include past performance alongside information on future scenarios sounds like a sensible compromise”.

He pointed out that even if fund managers were banned from using past performance data on fund factsheets and consumer marketing material it’s clear that this information would still be widely available online and would continue to be a key part of most people’s decision making process when selecting a fund.

The danger of using future scenarios – which look at how a fund might perform in unfavourable, moderate and favourable economic conditions -  is that many of the funds will simply revert to spurious standard projections, which may bear little relation to actual future returns and could make it harder for consumers to differentiate between various fund offerings.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
AXA Framlington Biotech GBP Z Acc492.56 GBP-1.05Rating

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for

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