Marketing Material Guidelines and Compliance FAQ
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Question
We use interest rates (e.g. 3-month LIBOR) as
our benchmark. Is this permissible?
We have created customized indices for our
schemes (e.g. 40% MSCI Global Capital
Markets + 40% Lehman Brothers Fixed Income
US Aggregate + 20% Hang Seng Index), where
not all of the indices use the same basis. What
should we do?
Our scheme is an index-tracking fund whose
objective is to track a price return index which
does not take into account dividend
reinvestment (e.g. Hang Seng Index). Can we
use the price return index as the benchmark for
performance comparison in our marketing
materials?
Our scheme is a guaranteed fund, although the
NAV of the fund fluctuates throughout its life, the
return at maturity is calculated based on the
performance of a pre- determined price return
Answer
calculation of the scheme and the benchmark is the same.
If the scheme only has accumulation class of shares or the scheme does not make
distribution, then, the notes should clearly disclose the basis of the calculation (i.e. the
scheme performance includes dividend / income reinvestment and the benchmark is a
price return index that does not include reinvestment of dividends / income.)
Benchmarks with reference to interest rate trends may not take into account compound
interest / reinvestment of income. If the benchmark or index chosen has a calculation
basis which takes into account compound interest / reinvestment of income, such basis
should be used in comparing the performance of an accumulation share class. If the
scheme's performance is shown assuming accumulation or reinvestment of income, but
the benchmark or index chosen does not take into account compound interest /
reinvestment of income then, the notes should disclose the basis of the calculation (i.e.
the scheme performance includes income reinvestment and that the benchmark (LIBOR)
shows interest rate trends which do not take into account reinvestment of income.)
The question is whether you are comparing "like with like". As far as possible, the
performance of each of the indices should use the same basis of calculation as the
scheme's performance. Thus, if the scheme performance relates to an accumulation
class of shares or the scheme does not make distribution, managers / product issuers
should choose to use total return indices. If there is no total return index for a particular
component of the benchmark, this should be explained by way of clear disclosures.
The general principle is that a comparison of performance figures should be fair, relevant, on
a "like with like" basis. If the scheme shows performance relating to an accumulation share
class or the scheme does not make distributions, and the manager / product issuer wishes to
compare this performance against the price return index, the manager / product issuer must
show the performance of the total return index in addition. The notes should disclose the
basis of the calculation (i.e. the scheme performance and total return index include dividend
reinvestment and the price return index does not take into account reinvestment of dividends.)
The Commission does not dictate the investment objective or policy of a scheme. Thus, the
manager / product issuer is free to choose the index used in the formula to calculate maturity
proceeds.
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