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- ICI Comment Letters
Institute Submits Risk Disclosure Research to SEC
Washington, DC, April 9, 1996 - The Institute recently submitted a supplemental comment letter to the Securities and Exchange Commission in response to the Commission's concept release on investment company risk disclosure. The Institute's letter also enclosed ICI's comprehensive research report, "Shareholder Assessment of Risk Disclosure Methods."
Based on the results of this research, the Institute's supplemental comment letter recommends that the Commission adopt the ten-year bar graph and more focused narrative disclosure requirements. In addition, the letter urges that the Commission avoid the pitfalls of a mandated, numerical risk measurement. Highlights of the Institute's research include the following:
- Mutual fund investors care about risk and typically inquire about risk before making fund purchases.
- Notions of "risk" differ among shareholders and risk appears to be a multifaceted concept for most shareholders.
- Investors find narrative disclosure useful to their evaluation of risk. For example, 51% of respondents stated that they are very confident of their ability to use narrative disclosure to assess the risk of a single fund.
- Graphic presentation also would help investors. For example, 51% of respondents stated that they are very confident of their ability to use a ten-year total return bar graph to compare the risks of several funds.
- Quantitative risk measurements would complicate an evaluation of mutual fund risk for most investors. Most investors—including those who have used quantitative risk measurements—are not very confident of their ability to use these measurements in the future.
- Quantitative risk measurements have a strong potential to confuse or mislead investors. For example, the short-term volatility measured by standard deviation or beta is not particularly relevant for long-term investors. Yet a significant percentage of investors who rely upon these measurements are long-term investors.