Bank of Israel research finds poor mutual fund presentation can lead to outflows

Punctuation can scare off investors more than actual assets!

By Ivan Levingston

Published August 15, 2019, 10:15 a.m. EDT

Updated May 28, 2021, 10:37 a.m. EDT

1 Min Read

Forget lengthy disclosures. There’s nothing like punctuation to ward off investors.

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According to Bank of Israel research published Tuesday, the simple addition of an exclamation mark to the names of some mutual funds led to significant declines in net flows as retail investors grew warier. The bank calls it the “Exclamation Mark of Cain.”

Charity Karanja

Charity Karanja is an attorney at Butler Snow LLP in the Public Finance, Tax Incentives and Credit Markets Group. She holds the Development Finance Certified Professional (DFCP) designation through the Council of Development Finance Agencies (CDFA). She is recognized as one of The Bond Buyer's 2025 Rising Stars and has the distinction of being one of six women in the nation named to the 2024 Class of the Caren S. Franzini Fellowship, a merit- based program by the CDFA Foundation, recognizing outstanding women in development finance for their leadership and dedication to the advancement of the industry.

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Tray Hairston

Tray Hairston is an attorney at Butler Snow LLP in the Public Finance, Tax Incentives and Credit Markets Group. He holds the Certified Economic Developer (CEcD) designation through the International Economic Development Council (IEDC) where he serves on the Board of Directors. He is recognized as one of The Bond Buyer's 2018 Rising Stars and has structured more than $3 billion in transactions.

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While conventional theories on decision-making hold that investment strategies should be made following rational analysis of qualities like risk, return, or fees, the research paper published Tuesday shows presentation can shape investment behavior.

Money managers poured $1.6 billion into the iShares 20+ Year Treasury Bond ETF (TLT), the most since September. — A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, April 27, 2018. U.S. stocks were mixed as euphoria from better-than-forecast earnings reports faded with investors contemplating the implications of higher interest rates in an economy that may be cooling. Photographer: Michael Nagle/Bloomberg

The paper draws on a study of a 2010 Israel Securities Authority reform that required fund managers to add an exclamation mark to the names of mutual funds allowed to hold high-yield corporate bonds beyond their maximum exposure to equity investments. Only the risk salience was affected, not the fundamentals or information available.

However, the name change also created another impact.

Funds that added an exclamation mark boosted junk bond holdings significantly. “We leave
the further investigation of this behavior to future research,” the researchers wrote.

Ivan Levingston

Bloomberg News