Circular on Disclosure / Use of Annualised Returns for Money Market Funds

On October 25, 2023, the Securities and Futures Commission of Hong Kong (SFC) issued a circular as regards the illustration of the annualized return in marketing material of money market mutual funds (MMFs). The circular was prompted by fund managers who inquired about an adequate disclosure of annualized returns that are based on periods shorter than one year as this issue is currently not covered in the SFC’s Advertising Guidelines Applicable to Collective Investment Schemes Authorized under the Product Codes.
The circular now sets out the SFC’s expectations for disclosing such returns and some general obligations in this context. These are briefly summarized below:
(1) General expectations: The SFC notes that all requirements in the above noted Advertising Guidelines apply when presenting annualized returns based on periods less than one year. The responsibility for ensuring compliance with this circular, the guidelines, and other applicable requirements when displaying annualized returns lies with the issuers of the materials, including fund managers and intermediaries. If an intermediary intends to include annualized returns in its marketing materials, it should first reach an agreement with the fund manager regarding the calculation basis. This ensures that annualized returns are consistently calculated and comply with the relevant requirements before publication.
(2) Requirements pertaining to the covered period and the computation base: According to the SFC, annualized returns should be calculated based on a seven-day period, known as 7-day annualized returns, at a minimum. Additional returns based on other periods can also be presented, as long as the annualized return for a 7-day is also included.
The specific calculation methods and terminologies used for annualized returns may vary among different MMFs. The SFC currently does not prescribe a fixed formula or require a specific phrase / term for describing such returns. However, it is essential that a chosen terminology be explained in the marketing material and that the computation basis for the return is clearly disclosed. In this context, the SFC also notes that this computation basis must be fair, consistently applied, and not misleading to investors.
(3) Other requirements in this context: The SFC further notes the requirements outlined in paragraphs 8, 11, 12, 13, 15, and 23, of the noted guidelines. These requirements are applicable to all SFC-authorized funds, regardless of their type, and include the following:
– The reference date for calculating annualized returns should not be arbitrary, and the computation basis must be disclosed.
– The presentation of annualized returns is allowed only if the MMF has an investment track record of at least six months.
– If annualized returns are presented, they must cover at least the returns of the immediately preceding five years (or since launch if shorter), „based on a complete 12-month period (or shorter periods for the earliest / latest period presented)“.
– Figures for less than one year annualized returns should be presented in the same format and should not be disclosed more prominently than the most recent one-year figure.
– Issuers of investment funds are responsible for keeping the performance information up-to-date, and it should be updated if more recent information significantly differs (e.g., a variation of 10% or more from the last published statistics to the current performance figure).
– Also, the investor warning must be disclosed in all material that include performance figures such as annualized returns.
– When periods of less than 7 days are used to calculate annualized returns, the SFC expects fund managers / intermediaries to update DAILY these figures on their website and – in printed material – to reference the website where the most recent rate information can be found.
– Finally, if 7 day periods are used for the computation of annualized returns, the SFC expects firms to disclose the prescribed warning statements in the marketing material.
For ease of comprehension and to support fund managers in their compliance with these requirements, the SFC has also enclosed two illustrative examples on how annualized returns should be disclosed.