“Mutual-fund companies are supposed to help investors make money. But their marketing departments clearly never got that memo,” writes Jonathan Clements in today’s Wall Street Journal.

“These folks relentlessly promote whatever funds have done well lately, which means there is a decent chance they are about to crash and burn. For proof, look no further than the March 2000 stock-market peak, when the fund companies pushed highflying “growth”-stock funds, many of which have since plunged 60% and more, before rebounding recently.”

“There are two possible explanations for this behavior: Either the marketing folks really believe that the best investment strategy is to chase hot funds or, alternatively, they are shamelessly pandering to short-sighted investors. Neither explanation is especially flattering.”

“To gather evidence on the recklessness of mutual-fund marketing, I spent two days at the local library, combing through the fund advertisements in a large-circulation personal-finance magazine.”

“My journey began in January 1999. That month’s issue included an eclectic mix of ads for blue-chip stock funds, money-market funds and tax-free bond funds, plus pleas for individual-retirement-account business. In fact, the first hint of trouble didn’t come until May 1999, when Fidelity Investments pitched six of its technology-sector funds, including one that boasted a 12-month return of 90.41%.”

“What about bond and money-market funds? By the summer, the fund companies had given up on those. In the magazine’s July 1999 issue, I couldn’t find a single ad devoted solely to bond and money-market funds. These funds, of course, were poised for healthy returns in the years ahead.”

“Instead, it was all stocks, all the time. High-octane funds had posted dazzling gains in the past year, and the marketers were ready to roll. Forget the soft sell. It was time to flaunt raw performance.

In the October issue, Kinetics Internet Fund touted its 225.2% return for the past 12 months, Neuberger Berman Millennium Fund boasted of its 93.2% gain since the fund’s late 1998 inception, and Invesco Endeavor Fund screamed about its 66.1% climb, also since late 1998.”

“But if those ads seemed brash, they were quickly surpassed. In January 2000, Strong Enterprise Fund touted its 147.8% gain under a feisty two-word headline: ‘Any Questions?’ “

“The following month, seven funds breathlessly boasted of their 100%-plus gains in the past year. That, however, turned out to be a mere warm-up for the March and April issues, each of which included 14 funds proclaiming 100%-plus returns, and for the May issue, when the number hit 16. True to form, the stock market had reached its dizzying peak, and the collapse was under way.”

“To be fair, these advertisements often mentioned — in the smallest of print — that past performance was no guarantee of future results. But when fund companies shout about such hefty gains in such huge type, aren’t they implying that these results are likely to be repeated? Isn’t that the not-so-subtle suggestion?”