Standard III(D) – Performance Presentation

Members and Candidates should make reasonable steps to ensure that information about investment performance is fair, accurate, and complete.

Application 1: Performance Presentation and Former Employer

Tina Jensen is a well-respected global macro fund manager. Icon Partners is impressed by Jensen’s performance; she has consistently outperformed her peers in the global macro strategy space. Icon Partners successfully poaches her from her previous employer and sends out marketing material created by Jensen, stating her performance history and uploading her performance information on the company’s website. In her biography for the company website, she discloses that her performance history occurred at her previous firm. Still, she fails to disclose the years she underperformed the stated benchmark.

Has Jensen violated Standard III(D) – Performance Presentation?

1. No, because she does not need to disclose her years of underperformance.
2. No, because she disclosed that her performance history occurred at her previous employer.
3. Yes, because she is selective about what results to disclose.

Solution

The correct answer is C.

Jensen is required to give a fair and complete representation of her performance history. As a result, Jensen has violated Standard III(D) – Performance Presentation. Stating that her performance was achieved at her previous firm is a required disclosure. The omissions of her years of underperformance conflict with Standard III(D) – Performance Presentation.

Application 2: Performance Presentation and Simulated Results

Andrew Mason is a quantitative research analyst at QuantFirst. He has been developing a stock screening algorithm that identifies stocks that exhibit long-term momentum. In his research, he finds that his algorithm successfully selected stock found in the S&P 500 with the desired qualities between 2010-2020. His manager is satisfied that the algorithm works. While preparing the marketing material of this new algorithm, he is careful to disclose that the results are simulated from historic data (2010-2020) and that the future success of the algorithm cannot be guaranteed. However, he fails to disclose that the simulation only yielded successful S&P 500.

Do any of Mason’s actions violate Standard III(D) – Performance Presentation?

1. No, because he informs potential clients that the future success of the algorithm cannot be guaranteed.
2. Yes, because the success of his algorithm is time-dependent. He is selective about the period chosen.
3. Yes, because he omits that the algorithm has only produced successful results for stocks found in the S&P 500.

Solution

The correct answer is C.

Mason has violated Standard III(D) – Performance Presentation by failing to accurately and fairly disclose the circumstances in which the algorithm produced successful results. The use of historical data and the time period selected is permitted if he makes complete disclosures.

Application 3: Selective Performance Presentation.

Olivia Timberlake, CFA, is a portfolio manager at Lincaly Inc., an investment company. Olivia manages several funds that follow different investment strategies. In her marketing material, Olivia only mentions the better-performing fund to show the performance of her firm’s funds. Under the CFA Institute Code and Standards, the fund Olivia’s action

1. violated the CFA Institute Code and Standards.
2. does not violate the CFA Institute Code and Standards because she mentioned one of its funds.
3. does not violate the code because she did not lie about the performance of the fund.

The correct answer is A.

Olivia violated the CFA Institute Code and Standards by not fully disclosing the performance of its funds to investors. According to Standard III(D), Members and Candidates should make reasonable steps to ensure that information about investment performance is fair, accurate, and complete.