Managers struggle to find index to report against

The Financial Markets Conduct Act requires fund managers to include the return of a market index in their quarterly fund updates sent to investors, under the heading “how has the fund performed”. This allows investors to compare how their funds have performed, against the wider market.

The market index must be a "broad-based securities market index" that is "appropriate in terms of assessing movements in the market in relation to the returns from the assets in which the specified fund directly or indirectly invests".

But the FMA said, in the transition period to the FMCA, some managers reported finding it hard to comply with that requirements because there was no suitable market index available.

“We agree that that the market index requirement creates challenges for certain types of funds. In our view, the market index acts as a benchmark. Where managers are unable to find a compliant market index, we propose to allow managers to provide another form of benchmark (a peer group) as an alternative.”