Do 12-month returns lie about investment decisions? The Wall Street Journal

A rosy return percentage on a fund brochure can hide the ugly truth that your investment choice has not been as wise as you thought. There are a number of ways that fund providers and intermediaries can tweak the numbers, beginning with choosing the start and end date to ensure the highest possible return from the lowest possible entry point. Then there is failing to account for returns after costs. These costs can be linked to the actual underlying investment, though funds are often tucked into expensive investment vehicles which add extra layers of fees. If you invest across a border, currency conversion costs can eat into gains. Some fund managers add a calculation to compensate for risk, providing a different perspective of return. Then, there is the question of whether a fund manager can consistently produce superior returns year in, year out, with the global jury deciding that they cannot – which is why passive funds that track indices have mushroomed in popularity at the expensive of actively managed funds. The Wall Street reminds us just how fragile a high return can be, with one big underlying bet easily skewing gains. – Jackie Cameron

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