Fund managers and the way they label their fund offerings have been found wanting by the Australian Securities and Investments Commission (ASIC).
The regulator has released a new report which had highlighted mislabelling of funds particularly with respect to “cash” funds.
ASIC said it had sought corrective action from 13 Responsible Entities with the result that seven had already voluntary changed or proposed changes to the names of their funds, one was proposing to change the asset allocation to reflect its name, three had had undertaken to review their funds and one had withdrawn misleading promotional material.
The ASIC review found that:
- While most of the funds reviewed in the fixed-income, mortgage and property sectors were appropriately labelled, ASIC identified concerns with the labelling of some cash funds;
- Out of the 22 managed funds, with over $15 billion in funds under management, that used the term ‘cash’ in their labelling, 14 funds had confusing or inappropriate labels;
- Some funds that were labelled as ‘cash funds’ had asset holdings more akin to a bond or diversified fund, which have significantly higher risk and less liquidity compared to a traditional cash fund. This was especially prominent in funds that use words such as ‘cash enhanced’ and ‘cash plus’ in their labelling; and
- On average, funds labelled as ‘cash plus’ and ‘cash enhanced’ had more than 50% and 70% of their respective assets invested in assets other than cash or cash equivalents such as fixed-income securities and mortgages.
The regulator also pointed to mismatching if redemption features offered and the liquidity of underlying assets.
