Lesson Idea: Mutual Fund Advertising

The objective of this lesson is threefold:

  • Teach students about tactics that mutual funds use to sell their product
  • Expose students to language of investing through ads and investment research
  • Students learn to discern marketing tactics from performance of the product

Activity 1:  Students take a few minutes to review the two print ads and one TV ad.  Ask them to hone in on the key marketing message for each ad.  How is the advertiser trying to sell you on their product?  Discuss with a neighbor before discussing as a class.

Ad 1:   Franklin Templeton

  • Emphasize safety/security;  markets may be turbulent but you will be protected.
  • You can earn a decent return with less risk (beta is sophisticated term to compare how an investment moves relative to the overall market)
  • Disciplined approach/50 years in business;  someone you can trust.



Ad 2:  Janus:  

  • Focuses on performance data over various periods as well as the ratings from a firm called Morningstar.  
  • Note that mutual fund companies typically have dozens of funds and emphasize those that are their best performers.  
  • What about key disclaimer?  Past performance is no guarantee of future results.  We will soon discover how difficult it is to persist as a top performer.
  • No benchmark data.  How did these returns compare with the benchmark of owning a passive index?  



3.  TV commercial for Janus Mutual Funds:  https://www.youtube.com/watch?v=VAfScmSvzVs

  • Highlights research driven approach to pick the right stocks


You have seen the ads, now let’s look at some research.  The research provided below highlights two central points about investing:  

1.  Don’t chase performance.  

Have students review the conclusions from research conducted by Vanguard (if students want to read the report and view charts, click here):  

Investors are naturally drawn to top-performing actively managed funds [Editor’s note:  That is what fund companies love to advertise]. The result for many is a performance-chasing approach in which current funds are sold from the portfolio to make room for recent “winners.”Vanguard research demonstrates that this behavior is misguided, as a buy-and-hold strategy has outperformed performance-chasing over the past decade in all nine Morningstar equity style boxes.Our research furthermore reaffirms the importance of an oft-cited but frequently ignored legal disclaimer about investing:  Past performance is not necessarily indicative of future results.  This statement certainly appears to hold true among recent top-performing funds, and investors are well-advised to remind themselves regularly of it.To improve the odds of their long-term investment success,investors should understand that some periods of below-average performance are inevitable. At such times,investors should remain disciplined in their investment approach and avoid the temptation to chase performance.
2.  Understand that it is difficult for active managers to beat the market which explains the growing popularity of buying index funds vs. active mutual funds.  This article is accessible for students with basic understanding of investing.  Here is a brief summary:  

The probability of choosing the best active mutual funds is very low [bold print is mine] because most of them fail to beat their benchmarks over multiple time frames. Here are some mutual fund performance statistics from Standard & Poors to consider:

In 2012, for active U.S. stock mutual funds 63% of large-cap funds, 80% of mid-cap funds and 67% of small-cap funds failed to outperform their index benchmark.

Over longer time periods the results aren’t any better. For the three year period ended 2012, 86% of large-cap funds, 80% of mid-cap funds and 67% of small cap funds underperformed. The five year numbers are 75%, 90% and 83% of underperformance, respectively for large, mid and small-cap active mutual funds.


Close the class with a question:  Given what you have learned about mutual fund advertising and research on their performance, how will that impact your investment decisions?  Give yourself an A+ if you hear a response such as:  “invest in low-cost index funds” or “if you choose to invest in a mutual fund, know that past performance is no guarantee of future results.”  Class dismissed.  


One thought on “Lesson Idea: Mutual Fund Advertising

  1. Pingback: Question of the Day: When It Comes To Investing, Active or Passive? | Next Gen Personal Finance (formerly CFCI)

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