While mutual fund firms asked investors to look the other way when it came to performance during the bear market, some fund companies are now treading in dangerous territory following the market's recent rally, by promoting their year-to-date performance.

This trend is disturbing to those who feel the promotions are contrary to the lessons learned by the industry in the wake of the bubble bursting in 2000. Others feel it is just too soon following what might, or might not, be a recovery for firms to be touting performance numbers again.

When the market turned sour and mutual fund investors saw their investments drop to mere fractions of their former values, fund firms stopped promoting the grizzly numbers. Instead, they asked investors to pay attention to fundamentals. They ran ads touting good old-fashioned values because firms were well aware of the inability to sell products based on recent performance.

However, performance is back in style with some firms as of late. Fidelity Investments and Smith Barney have been among the most aggressive, placing print ads in places like The Wall Street Journal. However, several Smith Barney ads focus on the words "recent performance," giving the words prominence and printing them in larger size than the rest of the words on the page.

One ad features Alan Blake, portfolio manager for the Smith Barney Large-Cap Growth Fund. "Alan's recent performance may surprise you. It doesn't surprise us," the ad reads. Prominently featured on the layout is the year-to-date 21.45% return of the fund through the end of May. It is also showcased against the Lipper Large Cap Growth Fund average of 11.13%. Down below, figuring less prominently is the one-year past performance of negative 23.9%. Ed Giltenan, a spokesman for Smith Barney, said the campaign shows both long-term and short-term numbers for the funds. "While no one can predict exactly when the market will rebound, given the three-year bear market, we felt now is a good time to be increasing exposure to equities," he said.

Fidelity has also been guilty of playing the performance game, according to critics. One recent ad praised its Fidelity Leveraged Company Stock Fund and its 44.9% year-to-date return.

"We think that it's useful info for the customers to know that with the turnaround in the market, there is some positive fund performance," said Anne Crowley, a Fidelity spokeswoman. "We've had performance ads running throughout all market cycles. In the last year or so we have had more ads using the Morningstar ranking system," she said, adding the Morningstar rankings are a key point in the ads because they display a third-party assessment.

Fidelity continued to promote performance during the early years of the bear market, but it reached a point where investors were having trouble discerning which funds were doing well amid all the negative returns in the industry, Crowley said. The firm's switch from touting performance in the latter part of the down market was not an attempt to hide from the negative numbers, but rather to convey to investors other important messages, she said.

"I think ads that focus on recent performance in particular are the most inappropriate," said Morningstar analyst Gregg Wolper. He said promoting performance that was attained over a short or possibly unusual period in the market is unfair. "I'm not expecting fund companies to put out very dry and bland ads. They do have to promote their products. They have to be creative and promote what they see as their advantages. But focusing on short-term performance can be misleading and disruptive."

Alan Brown, chief marketing officer of Nuveen Investments, said that despite seeing an increase in performance ads, now is not the time for the fund world to be breaking them out, although admittedly his firm is not big on pushing those numbers at any time, he said. "It's a short-term solution," he said. "For the last two years you saw no one advertising performance. Did anyone learn anything?" Brown said the real message asset management firms should impress upon investors is to stay disciplined for the long haul. "You live by performance, and you die by performance," cautioned Richard J. Virgilio, vice president at the public relations firm the Stephenson Group. Virgilio has been providing marketing and public relations services to mutual fund firms for six years.

There is always the risk the market turnaround might not be as positive or quick as some have bet on. If so, those firms will end up looking silly if things go sour again, he said, adding that firms run the risk of turning off investors. "Besides wasting money, the ads will be a slap in the face to some investors," Virgilio said.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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