The Key Investor Document (Kid), which must be produced by the board of every investment trust, should be treated "with extreme caution", according to the board of the £1.6bn City of London investment trust.
Under the Packaged Retail Insurance and Investment Products (Priips) rules investment trusts must produce a Key Investor Document (Kid) containing a performance projection.
But the board of the City of London trust warned the documents did not achieve their set disclosure aims and were confusing to investors.
In its latest financial report, the board wrote: "The main objectives are to provide those investors with clearer disclosure, easier to understand content and better comparisons between products.
"Sadly, the Kid achieves none of these. For example, open-ended vehicles produce similar information but on different bases.
"In addition, we are required to include borrowing costs within an overall cost figure, while disregarding the resultant benefits which should accrue to performance over the longer term.
"As a result, closed ended funds will appear relatively more expensive than their open ended cousins, who of course cannot take on gearing."
It added: "Most worrying of all is that overnight we have moved away from a world where investors are forever being warned that past performance is no guide to the future to one where they are required to be supplied with indicative future returns in certain scenarios, but based on past returns achieved in a bull market which may not be repeatable in the near term.
"Such projections should be treated with the utmost caution. The scope for deviation from the mandated format and even for explanatory notes is negligible."
They added they hoped the regulators will address the issue.
The scope for Kids to mislead investors has been highlighted by, among others, Simon Fraser, chairman of the Merchants Investment Trust and the F&C Investment Trust, who described the performance projections as a "future mis-selling scandal".
The performance projections must calculate future returns based on the returns achieved in the previous five years.
Equity markets have performed very strongly in recent years, and Mr Fraser, along with many other people in the industry, are concerned that a performance projection calculated from returns achieved in a bull market will deceive investors.
The Association of Investment Companies (AIC) has called for Kid documents to be scrapped, while the financial regulator, the Financial Conduct Authority (FCA), has expressed concern about the reporting requirements.
As part of the financial results, the City of London trust confirmed a 6 per cent increase in its annual dividend, marking the 52nd consecutive year where the dividend of the trust has risen.
The trust has a current yield of 4.2 per cent.
david.thorpe@ft.com
