CFA’s Director of Investment Performance, EMEA Region, joins webinar on risk management to discuss order of performance reporting. 

Anyone who has ever read a table of investment returns knows that they typically begin with short-horizon data – usually monthly – and moves chronologically to end with the long-term data.  

Why is that? 

The CFA Institute’s Global Investment Performance Standards (GIPS) make it possible for investors to compare the financial performance of firms against one another. Since GIPS sets the defaults, and since the status quo is to display shortest term returns on the first and longest-term trends last, investors commonly assume that complying with GIPS requires them to emphasize short-term performance first.  

During our October Risk Webinar Series, Ian McAra – Director of Investment Performance at CFA Institute – made it clear that GIPS has no such requirement 

“How each provider generates [their data] as long as it is all there is up to them to decide… we prescribe a minimum set of information, we do not prescribe how that should be presented.”  

GIPS compliance and long-term focus are perfectly compatible with one another in this way. Indeed, a number of leading, global investors already work with investment reports that start with long-term data.  

Ontario Teachers’ Pension Plan (OTPP) – which manages the pensions on behalf of 327,000 retired teachers in the province reports long-term performance before short-term performance on all tables using an in-house visual template. MFS Investment Management, one of the oldest asset management firms in the world, implemented a long-term reporting order in their mutual funds board to codify the value they place on long-term horizons. Specifically, MFS Investment begins their mutual fund timeframe with the ten-year figure and has stopped its year to date metric all together. 

Kempen Capital Management CIO Lars Dijstra reiterates that long-term investing involves “very big ideas, but also very simple ideas. For example, on reporting, start the performance and track record with the long-term, since-inception numbers and not the last quarterly numbers.” 

Adjusting investment reports to begin with information aligned to the strategic time horizon matters. Behavioral science considers this approach a ‘framing effect’ where the information initially presented first frames what follows. The Behavioral Economics in Action at Rotman (BEAR) group at the University of Toronto confirms this point, stating that when infusing long-term priorities into organizations: “the general presentation of data on information sheets for stakeholders is key”. In other words, the sequence in which information is presented can have serious ramifications on investment-decision making. 

This line of logic has been embedded in prior research published on long-term-centric reporting. Institutional Investment Mandates: Anchors for Long-term Performance (2nd edition, 2020) determines that long-term reporting models “present table data from longest period on left to shortest period in right.” Similarly, Balancing Act: Managing Risk Across Multiple Time Horizon (2018) notes that “organizing performance reporting tables to begin with measurements of long-term periods, and if short-term data is required, putting it last.”  

McAra’s clarification, and the practices of notable investors worldwide, clarify the misconception that many investors face. With many industry leaders choosing to prioritize long-term trends over short-term returns, we welcome all who read this to also consider integrating this approach. FCLTGlobal’s research has consistently documented the benefits of taking a long-term approach in reporting sequences—to learn more, contact our research team at [email protected].