How does the wrong benchmark flatter a record?

Nobody needs to falsify a return to produce a misleading performance claim. Picking a slightly wrong comparison does the whole job, legally, in a footnote. Here are the four moves that account for most of it — learn to spot them and a great deal of marketing deflates on contact.

Move 1: the price-return switch

A fund reports +9.0% and notes that "the index returned +7.0%" — a two-point win. But the fund's 9.0% includes the dividends its holdings paid, while the quoted index is a price index. The matching total-return index did +9.4%.

Recomputed honestly: 9.0% − 9.4% = −0.4 points. The two-point victory was the dividend line, moved from one side of the comparison to the other.

Move 2: the risk-class downgrade

An equity fund compared to a cash rate, or a high-yield bond fund compared to government bonds, is being compared to something that simply carries less risk. Over most multi-year windows the riskier asset class has historically out-returned the safer one — so the fund "wins" by holding the asset class it was always going to hold. The comparison contains no information about the manager at all.

Move 3: the currency swap

A euro-based fund reports +12% against a dollar index that returned +15%, and claims a loss — or, in the other direction, reports a win — when the entire gap was the exchange rate. Same fund, same holdings, two opposite conclusions depending on which currency the index was quoted in.

Move 4: the chosen start date

"+180% since inception" is arithmetic; when inception happened is the argument. A track record beginning at the bottom of a crash inherits the recovery. Move the start date back six months into the fall and the same fund's number can halve. Whenever a period looks oddly specific — since March 2009, since October 2022 — the specificity is the message.

What this does and does not prove

Spotting a flattering benchmark tells you the comparison was uninformative. It does not tell you the fund is bad, that the manager lacks skill, or that anything should be avoided. It tells you that you have not yet been given evidence. That is a genuinely useful thing to know, and it is all it is.

The professional habit is simply to restate every claim with a fair benchmark and see what survives. Often something does. Often the remaining gap is small enough to sit comfortably inside the noise that Unit 4 will measure.

Try it now

1. Both series are below over their full histories — the price index and the investable total-return counterpart. Switch both to Monthly and Measure the same ten-year span on each. The annual gap between your two answers is the size of Move 1, and it compounds.

2. Now Move 2, on one chart. Measure to today from a start date, then measure to today again from a start date twelve months later. Two honest "since" figures, and they will not agree — sometimes by a lot. Try three more start dates and note the spread.
3. Find one performance claim anywhere and identify which of the four moves, if any, it uses. Describe it neutrally — "this comparison uses a price index", not "this fund is dishonest".