Why do some fund companies publish annual / semi-annual reports with NO manager commentary?

hank

Geez, I was recently shifted to Invesco when Oppenheimer merged with them. The difference in fund reports is stark. Oppenheimer’s managers, like most others I’m accustomed to, devoted several pages of each fund report to explaining how the markets behaved during the period and what changes to portfolio positioning they made or were planning. Some even speculated how the investing environment looked to them going forward. Sure - it was self-serving to some extent and sometimes served to mask their own failings. That’s always understood. But it was also educational. And you felt that - win or lose - you at least had a thinking individual at the helm charting a course for the fund that made sense. (Isn’t that the reason we invest in actively managed funds?)

By contrast, Invesco seems to view these reports as mere accounting statements, listing assets, liabilities and names of management members. OK - for their gold fund or ultra-short bond fund I can do without commentary. But I have a few pennies in their “alternative” fund, QVOPX. Under Oppenheimer, manager Michelle Borre (who now co-manages the fund under Invesco) wrote some fantastic multi-page commentaries taking a broad view of global macro-economics. These were included in each report. I could almost forgive her the fund’s lousy performance after devouring these stimulating narratives. But since Invesco took over, I can’t find anything regarding the manager’s view of markets, significant changes over the time period in portfolio construction, or how they plan to position the fund going forward. Just basic cut and dry accounting stuff.

Why the difference in styles?

Mark

I found this segment in a lengthier 'undated' article:

Management's Discussion of Fund Performance ("MDFP")

"Currently, a mutual fund is required to include MDFP in its prospectus unless the information is included in the fund's latest annual shareholders report. While many funds already include MDFP in their annual reports, the SEC is proposing to require that the MDFP be included in the annual report to enable investors to assess the information provided by the MDFP together with other "backward looking" information in order to better understand a fund's performance over the prior year.

The obvious purpose of this proposed requirement is to create consistency in the location of such information and to ensure that the certifications made by a mutual fund's principal executive and financial officers regarding the information contained in the fund's annual reports cover the MDFP."

Full article here

msf

That article may be older than you think. Here's an SEC Final Rule, adopted in 2004 that reads in part:

We are adopting, as proposed, a requirement that a mutual fund, other than a money market fund, include MDFP in its annual reports to shareholders. Currently, a mutual fund is required to include MDFP in its prospectus unless the fund includes the information in its latest annual report to shareholders

https://www.sec.gov/rules/final/33-8393.htm#IIC

Just this year, the SEC proposed extending this MDFP rule to closed end funds:

registered closed-end funds would have to provide management’s discussion of fund performance (or “MDFP”) in their annual reports, similar to requirements that currently apply to mutual funds, exchange-traded funds, and business development companies.

https://www.sec.gov/news/press-release/2019-39

Proposed CEF rule: https://www.sec.gov/rules/proposed/2019/33-10619.pdf
Comments received by SEC: https://www.sec.gov/comments/s7-03-19/s70319.htm

hank

Thanks for the SEC links and comment. I’ve tried to chop the pertinent text down a bit (below) without distorting the intent too much. Since it appears funds may provide the required information in tabular or graphic form, it appears Invesco may be in compliance. That last sentence, however, suggests that manager must comment on the fund’s recent performance. And, somewhere in the report is a brief sentence comparing the fund to its benchmark. Still leaves me baffled why a fund like this doesn’t offer some fuller perspective in the form of a multi-page narrative. That omission’s even more remarkable when one goes back and looks at the lengthy detailed narratives Borre used to submit under Oppenheimer.

“The Securities and Exchange Commission is adopting rule and form amendments under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940 ... The amendments will require a registered open-end management investment company to include in its shareholder reports disclosure of fund expenses borne by shareholders during the reporting period. The amendments also will permit a registered management investment company to include a summary portfolio schedule of investments in its reports to shareholders ... In addition, the amendments will require a registered management investment company to include a tabular or graphic presentation of its portfolio holdings in its reports to shareholders ... Finally, the amendments will require a registered open-end management investment company to include Management's Discussion of Fund Performance in its annual report to shareholders.”

This link to Invesco works as long as one clicks on semi-annual report from the menu on top. (The last annual report was released under Oppenheimer and contains a lot of manager commentary.) http://hosted.rightprospectus.com/Invesco/Fund.aspx?cu=00143W719&dt=P&ss=mf

I’ve looked again and will acknowledge the semi annual report’s a bit more complete than I surmised last evening. But per my original gripe, it contains no manager narrative . The charts, lists, etc. do an adequate job of showing what the fund holds (in this case some substantial “short” positions). A perceptive chart reader may possibly discern what changes occurred in the fund’s positioning. But missing are the “Whys” “Hows” and “Whens“ of the changes that occurred. Perhaps I’m the only investor that misses the detailed global perspective as to why they are invested the way they are? (Note: While this is a high expense fund, it’s those short positions that add to the cost.).

LewisBraham

Often it seems like pure laziness and indifference to one's shareholders to me, but sometimes it's because managers will post quarterly or even monthly commentaries on their web sites instead of in the semiannual report. There is also less frequently I think a case where some managers are super-paranoid about saying anything publicly to shareholders for legal reasons. For instance, here you can find monthly commentaries from Invesco and Oppenheimer posted on their web site: https://invesco.com/us/literature?NavItem=Mutual%20Funds&activeItem=f2a435e8-f3a8-4105-9414-0aabe8658a1c

BenWP

I agree with @hank that a lack of narrative is disappointing. I have thought well of Brown Capital and own two of their funds. However, they are among those funds who offer nothing but stats in the semi-annual report. In the case of BCSVX, I wanted either reassurance or an explanation about middling recent performance. I got nada. Now I am glad I shifted two-thirds of my position to ARTJX without waiting to hear from the managers. DF Dent, by contrast gives me great rationales for what they’re doing and my money does not wander. FMI is another firm that provides really meaty reports. In my experience, fund companies are all over the lot in their commitment to treating investors as partners. Fortunately, it’s easy to vote with our feet.

hank

I bookmarked and checked out the cool link @LewisBraham provided. For QVOPX I was only able to pull up the same tables they included in the semi-annual report. However, they noted that it had 2 pages. Since only 1 page surfaced, I submitted their form to have the document emailed to me. After 30+ minutes nothing has arrived.

Re @BenWP - Agree with your points. D&C is one I particularly enjoy reading (DODBX, DODIX). They have a very long term perspective and teach me a lot of things about the long term trends in various assets and their rationale for buying what they do. Right on the money from what I see in linking higher interest rates with improved performance for their sizable financial holdings. I don’t always read Giroux’s commentaries (PRWCX), but that’s another that’s interesting to pick apart. PRPFX is a different story. What you get is a colorful pie-chart showing how their static allocation to half dozen asset classes is parc’d out. No narrative from what I can tell. But that’s to be expected somewhat for a static allocation fund.

Edit: I’ve moved this thread from “Off Topic” to “Fund Discussions” where I feel it better belongs.