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Berger Ads Urge Investor Caution


Berger Funds of Denver, Colo. has launched an unusual print advertising campaign that warns investors not to expect repeat performances of 100 percent-plus returns that several of the Berger funds enjoyed in 1999.

The ads resulted from brainstorming sessions for developing ads. At one session, the firm's attorneys surprised Berger's marketing staff by warning them against promoting Berger's exceptional 1999 returns, said Sally Carleton, vice president of corporate communications at Berger.

Berger's marketing staff was anxious to boast of the one-year performance of several of the Berger Funds in its advertising, Carleton said. The Berger Information Technology Fund was up 161.4 percent as of year-end 1999, while the Berger Mid Cap Growth Fund surged 151.46 percent and the Berger New Generation Fund returned 144.20 percent, according to Lipper Analytical Services of Summit, N.J.

When the Berger marketing and advertising executives told the Berger compliance staff they wanted to flaunt these phenomenal returns in Berger's spring 2000 advertising campaign, the attorneys urged caution.

Someone then suggested that the firm do the unthinkable for a mutual fund company - take the standard "past performance does not guarantee future returns" disclaimer that is normally confined to small type at the bottom of ads and use it as the focal point of the ad in large print, Carleton said.

One of Berger's new ads, for instance, is headlined "Nothing but the Truth!" The phenomenal returns of the Berger Funds are also prominently displayed.

But right up with this information is the statement, "Berger Funds is thrilled with the outstanding 1999 performance of the funds below. But please note returns like these are not commonplace. One thing that will stay the same, however, is Berger's commitment to consistently competitive performance. We solemnly swear."

In another ad, Berger's headline boasts "Encore! Encore!" The text reads, "The market conditions were right. Our portfolio managers were bold. And in the end, four Berger funds finished 1999 above 100 percent. It's an accomplishment that may never repeat itself, but we're sure going to try."

Berger's tempered performance campaign is currently running in Money, Mutual Funds, Kiplinger's and Smart Money magazine, and is scheduled to run in upcoming mutual fund quarterly special sections of The Wall Street Journal, Barron's and Investor's Business Daily, Carleton said.

The honest, performance-with-a-catch tactic is a first for a mutual fund company, said Burton Greenwald, president of B.J. Greenwald Associates, a mutual fund research and consulting firm in Philadelphia. Berger is wise to highlight the risks involved in investing in funds that have had outstanding performance to short-circuit future disappointments in those funds' performance, Greenwald said.

Berger's attempt at honest advertising provides a model for the rest of the industry, which could be hurt if investor expectations continued to be inflated, Greenwald said.

"The industry is being shortsighted by burying caveats and risk in mice type," Greenwald said, referred to the miniscule size of the typical disclaimers that run on the bottom of print advertisements.

"In large type, it adds to their credibility," Greenwald said.

In fact, existing and potential shareholders have responded very favorably to Berger's ads, according to Carleton. This might lead Berger Funds to do more advertising of a similar nature, she said. Currently, however, the ads are only scheduled to run through early summer, she said.

The SEC has begun to scrutinize advertising claims more closely, particularly claims of funds that have surged because of their investments in hot IPO stocks whose performance is hard to duplicate. However, a spokesperson for the SEC declined to comment on Berger's frank advertising campaign, saying the SEC refrains from commenting on specific cases.