“What’s in a name? That which we call a rose, By any other name would smell as sweet.” — Juliet Capulet
What’s in a name? It turns out the SEC demands that the names of funds be descriptive of at least 80% of what the fund is doing. This new rule was adopted after many funds added language to their names suggesting they were part of the ESG movement but didn’t follow up by changing their portfolios to match the strategy. This is a technique known as “greenwashing.” The SEC has had enough of the practice, and has acted to purge the misnamed funds. Douglas Gillison and Michelle Price report for Reuters:
Wall Street’s top regulator on Wednesday adopted a new rule cracking down on so-called “greenwashing” and other deceptive or misleading marketing practices by U.S. investment funds.
The changes to the two decades-old Securities and Exchange Commission (SEC) “Name Rule” requires that 80% of a fund’s portfolio matches the asset advertised by its name.
It takes aim at a boom in funds that have tried to exploit investor interest in environmental, social and governance, or ESG, investing with names that do not accurately reflect its investments or strategies.
“A fund’s investment portfolio should match a fund’s advertised investment focus,” SEC chair Gary Gensler said on Wednesday at a meeting to vote on the rule. “Such truth in advertising promotes fund integrity on behalf of fund investors.”
The SEC since 2021 has also focused on prosecuting ESG-related misconduct and “greenwashing”, bringing enforcement actions and levying fines.
Action Line: How many investors bought funds with ESG-sounding names without looking at their holdings or the summary prospectus? Probably more than would care to admit it. Buying a fund because the name sounds like a fad Mr. Yappy Happy told you about is not investing. It’s speculation. When you want to talk about the benefits of owning a portfolio of individual securities, I’m here. Until then, click here to subscribe to my free monthly Survive & Thrive letter.
E.J. Smith - Your Survival Guy
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