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The evidence behind every claim

Every statement this site makes about funds, fees, advice or marketing practice comes from one of the sources below: regulators, index providers and peer-reviewed research. Each entry shows what the source says and how we phrase it. Link to any entry by its code, for example /evidence#e2.

Factsheets are marketing

What regulators call factsheets, and the rules written because selective presentation was a known problem.

  1. E1

    EU supervisors list factsheets as marketing communications

    EU supervisors list factsheets as marketing communications. The rules require them to be fair, clear and not misleading, which tells you what they are: sales material.

    What the source says

    ESMA's guidelines on marketing communications include in their scope "webpages, video presentations, live presentations, radio messages or factsheets". They require information that is "fair, clear and not misleading" (para 16), say past performance "should not be the main information" (para 44), and say risks must appear alongside rewards rather than in small print (paras 12 to 15).

    Last checked 12 October 2026.

  2. E9

    Advertising follows past winners

    Funds advertised after a strong run did not, on average, keep outperforming, but they did attract more money.

    What the source says

    Of 294 funds advertised in Barron's or Money: significant outperformance before the ads, "no superior performance in the postadvertisement period", yet significantly larger inflows.

    • Jain, P.C. & Wu, J.S. (2000). "Truth in Mutual Fund Advertising: Evidence on Future Performance and Fund Flows." Journal of Finance 55(2), 937–958. doi.org/10.1111/0022-1082.00232

    Last checked 12 October 2026.

  3. E10

    Selection neglect

    Fund companies tend to advertise their best performers, and investors, even professionals, often fail to account for that selection.

    What the source says

    Fund companies "selectively advertise their better-performing funds" (the median advertised fund ranked between the 79th and 100th percentile). Investors, novice and professional alike, treat advertised performance "as if those data were unselected."

    • Koehler, J.J. & Mercer, M. (2009). "Selection Neglect in Mutual Fund Advertisements." Management Science 55(7), 1107–1121. doi.org/10.1287/mnsc.1090.1013

    Last checked 12 October 2026.

  4. E11

    Incubated track records

    Funds tested privately before launch showed extra performance that disappeared once they opened to the public, which can flatter a track record.

    What the source says

    "Funds in incubation outperform nonincubated funds by 3.5% risk-adjusted" (per year); the advantage disappears after the funds open to the public.

    Last checked 12 October 2026.

  5. E22

    Rules on how performance may be shown

    Rules in the US and EU now require net-of-fee figures, standard periods and consistent benchmarks, because selective presentation was a known problem.

    What the source says

    The US Marketing Rule (2020) bars showing gross performance "unless the advertisement also presents net performance", and requires 1-, 5- and 10-year periods. ESMA requires 10 (or 5) years of past performance, complete 12-month periods, yearly figures alongside cumulative ones, and the same benchmark as the fund's legal documents (paras 43 to 46), and limits simulated past performance (para 49).

    Note: Phrase this as context. Do not suggest that any firm breaks these rules.

    Last checked 12 October 2026.

What active funds deliver

Long-running statistics and research on how actively managed funds compare with an index, and how long winners last.

  1. E2

    Most US large-cap active funds trailed the S&P 500

    Over the 20 years to 2025, more than 9 in 10 US large-cap active funds did worse than the S&P 500.

    What the source says

    Share of US large-cap active funds that underperformed the S&P 500 to 31 December 2025: 78.78% over 1 year, 85.59% over 10 years, 89.93% over 15 years and 92.89% over 20 years.

    SPIVA U.S. Year-End 2025, published March 2026. Last checked 12 October 2026.

  2. E2b

    Many funds don't survive

    Only about a third of US large-cap funds that existed 20 years ago are still around. The ones that closed don't appear in today's brochures.

    What the source says

    Only 34.61% of US large-cap funds survived the 20 years to 2025; 50.55% survived 15 years.

    SPIVA U.S. Year-End 2025, published March 2026. Last checked 12 October 2026.

  3. E3

    Winners rarely stay winners

    None of the top-quartile US large-cap funds of 2021 stayed in the top quarter every year through 2025. Last year's star is a weak guide.

    What the source says

    Of US large-cap funds in the top quartile in December 2021, 0.00% stayed in the top quartile every year through December 2025. 4.49% of top-half funds stayed above the median, against 6.25% expected by chance.

    U.S. Persistence Scorecard, Year-End 2025. Last checked 12 October 2026.

  4. E5

    The arithmetic of active management

    Nobel laureate William Sharpe showed that, after costs, the average actively managed dollar must earn less than the market.

    What the source says

    "Before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar"; after costs it "will be less".

    Last checked 12 October 2026.

  5. E6

    Luck versus skill

    Research by Fama and French found that few active funds earn enough extra to cover their costs, and that skill is hard to tell apart from luck.

    What the source says

    Few funds produce benchmark-adjusted returns large enough to cover their costs; "the high costs of active management show up intact as lower returns to investors."

    Last checked 12 October 2026.

  6. E20

    Survivorship bias in fund averages

    Leaving out funds that closed can flatter average fund returns by around 1 percentage point a year, according to academic estimates.

    What the source says

    Funds that disappear "tend to do so due to poor performance." For long samples, "the hypothesis that survivor bias is 1% per year is not rejected."

    Last checked 12 October 2026.

Fees and investor behaviour

How costs compound, and how investors respond to fees they can and can't see.

  1. E4

    Fees compound

    In the SEC's own example, a 1% annual fee instead of 0.25% leaves about $29,000 less after 20 years on $100,000.

    What the source says

    In the SEC's example, $100,000 growing at 4% a year for 20 years ends at about $208,000 with a 0.25% annual fee, $198,000 with 0.50%, and $179,000 with 1.00%.

    Note: The $29,000 difference is calculated from the SEC's rounded figures ($208,000 minus $179,000).

    Last checked 12 October 2026.

  2. E7

    Investors earn less than the funds they own

    One study estimates investors earned about 1.2 percentage points a year less than the funds they owned, largely because of when they bought and sold.

    What the source says

    Over the 10 years to 2025, US fund investors earned 8.7% a year, against 9.9% a year for the funds themselves: a gap of about 1.2 percentage points a year.

    Mind the Gap 2026, published August 2026. Last checked 12 October 2026.

  3. E12

    Investors react to visible fees, not ongoing ones

    Research shows investors react to visible upfront charges but largely ignore ongoing yearly fees, which is where marketing helps.

    What the source says

    Investors are more sensitive to "salient, in-your-face fees" like loads and commissions than to operating expenses. The authors found no relation between operating expenses and flows and point to marketing as an explanation.

    Last checked 12 October 2026.

  4. E13

    People don't pick the cheapest identical fund

    In an experiment, participants choosing between near-identical index funds mostly failed to pick the cheapest one.

    What the source says

    In an experiment choosing among S&P 500 index funds, "subjects overwhelmingly fail to minimize fees", even when fee information is made salient.

    • Choi, J.J., Laibson, D. & Madrian, B.C. (2010). "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds." Review of Financial Studies 23(4), 1405–1432. www.nber.org/papers/w12261

    Last checked 12 October 2026.

Advice and sales incentives

What research and regulators have found about how products are sold.

  1. E8

    An estimate of what conflicted advice costs

    The White House Council of Economic Advisers estimated in 2015 that conflicted advice cost US retirement savers about $17 billion a year.

    What the source says

    "Savers receiving conflicted advice earn returns roughly 1 percentage point lower each year," costing "about $17 billion each year."

    Note: Present this as an estimate: it was contested when published.

    Last checked 12 October 2026.

  2. E14

    Broker-sold funds, 1996 to 2004

    A study of 1996–2004 found funds sold through brokers delivered lower risk-adjusted returns than those bought directly, even before distribution costs.

    What the source says

    Over 1996 to 2004, "broker-sold funds deliver lower risk-adjusted returns, even before subtracting distribution costs."

    • Bergstresser, D., Chalmers, J.M.R. & Tufano, P. (2009). "Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry." Review of Financial Studies 22(10), 4129–4156. doi.org/10.1093/rfs/hhp022

    Last checked 12 October 2026.

  3. E15

    Advisers can reinforce biases

    In a mystery-shopper study, advisers often encouraged chasing past returns and steered clients toward higher-fee active funds.

    What the source says

    In a mystery-shopper audit, advisers "often reinforce biases that are in their interests", "encourage returns-chasing behavior and push for actively managed funds that have higher fees."

    • Mullainathan, S., Noeth, M. & Schoar, A. (2012). "The Market for Financial Advice: An Audit Study." NBER Working Paper 17929. www.nber.org/papers/w17929

    Last checked 12 October 2026.

  4. E21

    Regulators acknowledge distribution conflicts

    Regulators in the US, UK and EU have acknowledged that commissions and sales incentives can conflict with investors' interests.

    What the source says

    The SEC (Regulation Best Interest, 2019) says the broker–customer relationship "has inherent conflicts of interest, including those resulting from a transaction-based (e.g., commission) compensation structure." The FCA's 2014 review of the UK's commission ban found "commission is no longer a driving factor in advisers' recommendations." In 2025 ESMA launched a supervisory review of conflicts of interest in distribution, including "staff remuneration and inducements".

    Last checked 12 October 2026.

Labels and holdings

When the name on the product and what it holds may not match.

  1. E16

    ESG labels and holdings

    A peer-reviewed study found that, on average, US funds marketed as ESG did not hold companies with better labour or environmental records, and charged higher fees.

    What the source says

    US self-labelled ESG funds (2010 to 2018), compared with non-ESG funds from the same managers, held firms with worse labour and environmental compliance records and higher emissions, had lower financial performance, and charged higher fees.

    • Raghunandan, A. & Rajgopal, S. (2022). "Do ESG funds make stakeholder-friendly investments?" Review of Accounting Studies 27(3), 822–863. doi.org/10.1007/s11142-022-09693-1

    Last checked 12 October 2026.

  2. E17

    Regulators act on fund names

    US and EU regulators now require funds with ESG-style names to invest at least 80% in line with the label.

    What the source says

    The US SEC's Names Rule amendments (2023) target fund names "likely to mislead investors" and require 80% of assets to match the name, including ESG-style names. ESMA's 2024 guidelines set an 80% threshold for ESG and sustainability terms, to counter "unsubstantiated or exaggerated sustainability claims."

    Last checked 12 October 2026.

Numbers that can mislead

Smoothed returns, simulated track records, and why reading the numbers is hard for everyone.

  1. E18

    Smoothed returns flatter risk

    When assets are hard to value, reported returns can look smoother than reality. One study found risk-adjusted scores overstated by up to 65%.

    What the source says

    For illiquid assets, "reported returns will tend to be smoother than true economic returns" (908 hedge funds studied). Serial correlation can overstate a hedge fund's annual Sharpe ratio "by as much as 65 percent."

    Last checked 12 October 2026.

  2. E19

    Backtest overfitting

    Mathematicians have shown that impressive simulated track records are easy to produce by trying many variations, and often fail with real money.

    What the source says

    Impressive backtests are easy to obtain after trying relatively few configurations, and the number of trials is rarely disclosed. Overfitting can lead to negative expected out-of-sample returns.

    Last checked 12 October 2026.

  3. E23

    Financial literacy is low

    Only about a third of older Americans can answer three basic questions about interest, inflation and diversification, yet they are the target of polished investment marketing.

    What the source says

    Only about a third of Americans aged 50 and over could answer three basic questions on interest, inflation and diversification correctly (2004 Health and Retirement Study); 30% in the 2009 National Financial Capability Study.

    • Lusardi, A. & Mitchell, O.S. (2014). "The Economic Importance of Financial Literacy: Theory and Evidence." Journal of Economic Literature 52(1), 5–44. NBER Working Paper 18952. www.nber.org/papers/w18952

    Last checked 12 October 2026.

  4. E24

    The How to Lie with Statistics precedent

    Darrell Huff's How to Lie with Statistics became the best-selling statistics book ever by showing readers the tricks behind the numbers.

    What the source says

    How to Lie with Statistics (1954) "has sold more copies than any other statistical text."

    Note: Do not quote a specific sales figure.

    Last checked 12 October 2026.

For journalists: reproducing any figure on this site

  • Statistics about funds, fees and advice come from the sources above. Each one is dated; we re-check them when a new edition is published.
  • Every figure about the example funds is computed by the open-source openfactsheet library (version 0.1.0, methodology 0.1.0) from synthetic data. Run the same example in the free tool, or with the Python library, and you get the same numbers.
  • The example data is labelled synthetic wherever it appears. None of it describes a real fund.
Run the exampleRead the methodology

Corrections

If you think a source is misquoted, out of date or misread, tell us at corrections@openfactsheet.org. We correct claims in the open: every correction is listed here with what changed and when, and nothing is edited silently.

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OpenFactsheet does not name, rate or recommend any investment or firm. The practices described are documented in research and regulation; see Sources.