November 11, 2020
My firm, Purcell Communications (purcellcom.com), provides outsourced content support for investment firms. Since 2005, our principal focus has been content development and process management for various kinds of portfolio reporting.
My principal concern with proposed rule s7-09-20 is the limitation it places on explaining meaningful changes in a fund's strategy and/or risk profile from one semiannual period to the next.
Most mutual fund prospectus language regarding investment strategy and principal risks is written as broadly as possible. It is quite possible for a portfolio manager to dramatically change the risk profile of an investment while staying within prospectus guidelines. For example, a significant shift of assets from the health care to the technology sectors could significantly change the way a fund responds to market events.
It is also possible for the markets to change the risk profile of an investment without the investment manager doing anything. For example, if a fund invests in long duration bonds and has benefited significantly from a long-term decline in interest rates, its risk profile will dramatically change once rates again rise.
By focusing the \"Portfolio Changes\" section strictly on prospectus updates, it becomes difficult or impossible to articulate key changes in strategy or risks within the shareholder report itself.
While it is possible under the proposed rule for such contextual information to be published as a supplement to the newly designed report, the proposed rule would limit the prominence of that information and reduce its overall accessibility. This is a significant concern, as it exposes fund firms to lawsuits from investors who do not feel adequately prepared for changes in the risk/return profile of their investments.
We suggest that such content be allowed, but be word count limited so as to avoid overlong discussions.
We have one final concern related to funds with a stated ESG-oriented investment strategy. It is our view that investors in ESG-oriented funds have a different set of information needs. These funds should be allowed to incorporate relevant ESG statistics if they wish, and make reference to supplementary ESG focused content as appropriate.