Poor market performance coupled with increased Securities and Exchange Commission vigilance over performance advertising has prompted some fund companies to advertise their funds' relative performance instead of absolute returns, according to fund advertising and marketing executives.

OppenheimerFunds of New York opted to go that route with its Global Fund, said Bruce Dunbar, vice president of brand marketing for the firm. Last year the firm advertised the fund's one-, five- and 10-year returns but decided to change the ad at the beginning of this month after the fund's performance began to fall off this year, Dunbar said. The fund lost 21 percent in the first quarter of this year.

The ad now trumpets the fact that the fund is ranked number one by Lipper of Summit, N.J. for 10-year performance in its category and that Morningstar of Chicago has given the fund five stars.

"The motivation was that the fund was ranked number one by Lipper and we felt that was as strong a case as any absolute return number," Dunbar said.

Changing the emphasis of the ad simply made good marketing sense, he said.

"I think performance was a factor," he said. "Despite the fact that over the one-year period, the fund is just about average in its category, it's a question of relative versus absolute. When the absolute number is negative, people tend to just move on."

While some companies, like Oppenheimer say the SEC's warnings has not affected its decision to switch their ads, it is still something that funds' marketing and compliance executives are mindful of, according to Darby Hobbs, president of Graylyn Associates, a marketing consulting firm in Chatham, Mass.

"They want to look like good corporate citizens," she said. "The SEC's rules and desires are driving this a little bit."

The SEC has expressed concern that the sudden drop in some funds' performances may not be reflected by the most recent quarter's returns. While existing advertising regulations require advertisements to include the most recent quarter's returns, funds could be issuing a materially misleading ad if the advertised performance is not reflective of its most recent performance, the SEC has said. It is expected to issue a legal bulletin addressing the matter within a few months.

The fact remains, however, that poor performance makes for poor advertising, said Dan Ross, president of Wechsler Ross & Partners of New York, a marketing and design firm for the financial services industry.

"It's simple. Who's going to advertise negative numbers?" he said. "In a market environment like this, the reality is people have been advertising double and triple digit returns for so long, who is going to advertise single digit returns? No one is going to buy it."

While advertising compliance is a concern, it is a small part of companies' decisions in designing ads, he said.

"In my opinion, people advertise performance as a crutch," he said. "Once you take away performance, there is nothing left to sell, so people are scrambling."

And although advertisements of funds' quarterly returns can still be found in newspapers and magazines, the funds that use absolute performance figures are likely to be money market or value funds, marketing executives said. Expressing performance using a comparison to an index or a fund's category ranking is becoming much more common.

Several examples of that strategy appeared in The Wall Street Journal's April 9 edition that included a quarterly review of the fund industry. An ad placed by Charles Schwab of San Francisco highlighted the performance of three companies' funds using the funds' rankings by different fund rating agencies instead of the funds' quarterly returns.

Another advertisement in the same edition for the Excelsior Funds of New York eschews hard numbers for the star ratings of Morningstar of Chicago.

"Investor Expectations," the ad says. "The one market condition that never changes."

The Hartford Life Insurance Company of Simsbury, Conn., relies on the same tactic, also in the April 9 Wall Street Journal, prominently displaying four of its funds' Morningstar star ratings with the tagline, "Finally, a break from all the depressing news."

The increase in advertisements that use relative performance instead of absolute returns simply reflects existing market conditions, said Kristin Adamonis, an analyst with Financial Research Corp. of Boston.

"Showing the numbers now might not be good advertising because it doesn't compare to the funds' past performance," she said.

The challenge funds now face is figuring out how to shift from performance advertising to more image and concept advertising while still differentiating themselves from other funds, she said.

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