medium · GMAT Verbal
An investment company advertises that the twenty mutual funds it currently offers delivered an average five-year annualized return of eleven percent, compared with a seven percent return for the broader market index over the same five years. Company executives cite this gap to justify launching several new funds in additional asset categories, projecting that these new funds will likewise outperform the market index by a similar margin.
Which of the following, if true, most seriously weakens the executives' projection?
- The company's average five-year return figure was calculated using the same accounting method the market index itself uses.
- The company closed twelve underperforming funds that trailed the index, so the eleven percent figure reflects only survivors.
- The company's twenty current funds have, combined, more total assets under management than most competing firms' fund lineups.
- Investors in the company's funds pay taxes on capital gains annually rather than only when they eventually sell their shares.
- The company plans to hire additional analysts to help manage the new funds it launches in additional asset categories.
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