(April 26) – “Investors can be excused for doing a double take when looking at the latest mutual-fund advertisements,” write Aaron Lucchetti and Pui-Wing Tam in today’s Wall Street Journal.

“Judging from the current crop of fund ads, you would never know that the NASDAQ Composite Index has fallen 26.49% since March 10. The NASDAQ has been a driver of stunning mutual-fund returns over the past year as manager after manager chased momentum-driven technology stocks.

“Since last week, fund companies including Scudder Kemper Investments, Alliance Capital Management, American Century Investments, Fidelity Investments and Munder Capital Management have published advertisements highlighting or mentioning performance through the first quarter of this year. “Great performance requires focus,” brags an ad for six different Munder funds, including Munder NetNet Fund, whose 102.95% return for the 12 months ended March 31 is prominently displayed.

“The only problem: The performance of most stock mutual funds has slipped since then, in many cases significantly, and triple-digit returns are anything but certain going forward as the NASDAQ index struggles mightily with its extraordinarily high valuation level.’They have the risk warnings at the bottom, but that’s in the mouse-type,’ says John Lister, chairman of New York brand-identity consultant Lister Butler Consulting. “The headlines continue” with the same performance-oriented message that fund firms were using before the March 10 NASDAQ-index peak.

“An especially touchy question is whether a fund firm advertising flashy one-year performance implies that a fund can repeat its feat. ‘You’re creating an expectation that you might not be able to match,’ says Martin Swanson, director of investment-product marketing at Hartford Mutual Funds. Hartford’s ads take a slightly different approach. In a recent one, the company stresses nine portfolios’ results since their inception two to four years ago, and one-year results are given less-prominent play.

“Join First Omaha Growth fund manager David Jordan for a live discussion about value stocks, Wednesday at 14:00 ET. While the numbers used by most fund firms aren’t up to date, they generally fit within the rules. The Securities and Exchange Commission requires that funds displaying performance information in ads use data from the end of the most-recent quarter, including one-year, five-year and 10-year returns if all are available.
“But this doesn’t mean that regulators are unconcerned with how fund firms are portraying performance. ‘We want funds telling the whole story,’ says Paul Roye, director of the SEC’s Division of Investment Management.”