Fund Commentary Fundamentals
By Robert Walker Cohen
Fund commentaries are essential for compliance and investor relations purposes. For financial writers, when creative instincts clash with rigid institutional mandates, they can also be a source of friction.
For the uninitiated or the newly, I’ve written a set of fundamentals that junior writers have found useful —
1. Don’t stand out. Commentaries are not meant to be bright and shiny objects. They exist for compliance and investor relations purposes. It’s essential to study past commentaries of a given institution and pay careful attention to tone, word count, word choice, and various other hallmarks that are more or less “baked in.” These expectations may be unspoken by management, but you must ensure that your commentary does not deviate much from the protocol. If you do, you may find yourself with an unhappy compliance headache. Financial writers who can set aside their egos and quickly adapt to a fund’s protocols and traditions will save a lot of time in terms of revisions and avoid compliance issues.
Crucially, this also applies to understanding a fund’s spreadsheets—any fund commentator will need to ensure they understand their employer’s particular way of formatting and presenting fund data.
2. The story can be more than meets the eye. For example, a well-known stock may see a sharp drop despite reporting quality earnings, growth projections, and broader industry optimism. In this case, it can help to read past commentaries, media reports, or other analyst reports related to the stock or the broader industry.
A commentary writer may learn something unexpected, such as that the entire industry appears to be going in a certain direction while the seemingly well-performing stock is going against the grain. Or, that the price had been too high to begin with due to analyst hopes for a given initiative—and the initiative was frustrated, for whatever reason, dashing their hopes. Writing fund commentaries can entail a lot of dot-connecting in such cases.
3. Some equities are easy to research, others are not. This is especially the case when completing monthly reports on lesser-known companies that are rarely in the news. They tend to live outside the S&P 500 and the Nasdaq and are often found in the Russell or the Dow. That said, it may surprise many to know that even most S&P and Nasdaq listings are only sporadically covered by industry publications. It’s occasionally necessary to cover the movements of such an equity in a fund commentary due to a dramatic movement.
Often, the most recent quarterly earnings report can provide some guidance. But once in a while—such as in the case of a positive earnings report followed by a sharp dive only two months later—even this does not offer any hints as to why a stock moved as it did. When required to explain such a mystery without much information at hand, keep the following strategies in mind:
A. Research comparable peers: Look closely at similar companies within an industry vertical, or analyze the vertical itself.
B. Zoom out to macro trends: You will likely discover that a broader macroeconomic or sector trend happened to move an entire basket of interrelated stocks.
C. Leverage industry journals: Broad trends are much easier to research than the isolated movements of individual stocks. They can reliably be found reported in industry journals or other outlets, offering an entirely plausible argument as to why a particular stock moved in a strange direction.
The fun part of fund commentary is that it can sometimes feel a bit like uncovering a mystery or piecing together a complicated puzzle.
I conclude with an apt quote from David Coleman, the President of The College Board, that I believe applies well to the art of the fund commentary:
"Read like a detective and write like a conscientious investigative reporter."
When we do this well, we don't only satisfy compliance. We provide investors with the clarity they deserve.
