MFS Investment Management will pay a $1.9 million penalty to settle claims that it distributed marketing materials for its blended research strategies that contained misleading and inaccurate information, the Securities and Exchange Commission announced Aug. 31.
MFS introduced its blended research strategies, which combine research ratings from its fundamental analysts and quantitative models to manage portfolios of stocks for client investment, in 2001. From approximately 2006 to 2015, MFS advertised that its blended research philosophy was based on the principle that fundamental and quantitative management styles excel in differing market conditions, according to an SEC administrative proceeding. MFS contended that lending fundamental and quantitative stock ratings could over time yield better returns than either type of ratings alone, the SEC added.
But the marketing materials failed to disclose that some of the quantitative ratings used to create a hypothetical portfolio were determined using a retroactive, back-tested application of MFS' quantitative model, the SEC said.
MFS did not admit to or deny any of the SEC's findings. Its spokesman, Daniel Flaherty, said in a statement that the investment manager has cooperated fully with the SEC and noted that MFS voluntarily discontinued the use of the materials in question in late 2015, which was prior to the SEC's investigation.
"Importantly, the SEC made no finding of any intentional wrongdoing or financial loss to our clients," Mr. Flaherty said. "Indeed, the SEC made no findings questioning the construction or performance of our blended research strategies."
According to the SEC, MFS' advertisements showed a hypothetical portfolio that had annualized returns from 1995 forward that exceeded the annualized returns of either a hypothetical portfolio of fundamental "buy" rated stocks or a hypothetical portfolio of quantitative "buy" rated stocks. MFS used back-tested quantitative ratings for the period of 1995 to 2000 and, for the period of 2000 through 2003, used some live quantitative ratings and some back-tested ratings, the SEC said.
Also some MFS advertisements "falsely claimed that the hypothetical portfolio was based on MFS' own quantitative stock ratings dating back to the mid-1990s, even though before 2000 MFS did not have a quantitative research department or generate its own quantitative stock ratings," the SEC said.
Mr. Flaherty said MFS has retained a third-party compliance consultant to help ensure it continues to market all of its strategies appropriately. MFS had $484.8 billion in assets under management as of July 31.