Review finds disclosure issues with funds-of-funds

first_img James Langton Staff from the investment funds and structured products branch of the Ontario Securities Commission (OSC) have uncovered disclosure issues at investment funds that repackage other funds, according to the September 2016 issue of The Investment Funds Practitioner (IFP). Keywords Funds of fundsCompanies Ontario Securities Commission Share this article and your comments with peers on social media Facebook LinkedIn Twitter The IFP highlights a recent review of fee structures and disclosure at funds-of-funds found “a number of” funds that invest in exchange-traded funds (ETFs) which did not include the expenses of the ETFs in their calculations of their management expense ratio (MER) and/or their trading expense ratio (TER). “Many of these top funds disclosed MERs and TERs that were materially understated,” the IFP says, noting that these funds had to refile their reports of fund performance to correct the MER and/or TER. The IFP stresses that fund managers must “look-through” the expenses in fund-of-funds when calculating the MER and the TER for the top funds. Additionally, the IFP indicates that regulators are concerned that the disclosure provided by funds-of-funds could be misleading when the top funds report charging a minimal management fee, but the underlying funds have higher fees, particularly “if there is no prospectus disclosure explaining that the underlying funds may have higher management fees.” The OSC expects these sorts of funds to “provide sufficient disclosure to clearly explain the impact of the expected management fees of the underlying funds on the top fund’s MER,” the IFP says. The review also found that fund managers “generally have policies” to prevent the duplication of fees in funds-of-funds. However, the IFP also notes that the OSC came across funds that invest in underlying funds with management fees and/or performance fees. The OSC’s review covered 29 investment funds managed by 16 fund managers, including conventional mutual funds, ETFs, and pooled funds. Photo copyright: nonwarit/123RF last_img

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