Highs and Lows: Fees, Waivers, and ETF Trends
Rock Bottom?
Welcome to this week's News Brief, a look at some of the biggest stories of the past week.
Fund fee limbo contest winding down.?Fund fee cuts and waivers pushed the average expenses borne by investors to the lowest rate ever in 2023, according to a recent?Morningstar?report. But when it comes to the question of how low they can go, the answer seems to be not much more. Over the past decade, fees for newly launched mutual funds have fallen by about 30% to 84 basis points, according to the report. But the average price for newly launched exchange-traded funds has ticked up 11 basis points to 58 bps during that timeframe. And when it comes to product development, ETF launches far outpace those of mutual funds. The Chicago-based research firm attributes the jump in ETF costs to the fact that the products have branched out beyond beta. More complex strategies have come to market, including active and alternative flavors. Executives at?Touchstone?and?T. Rowe Price?told Ignites that price isn't everything. Investors will pay for performance.?Daniel Gil?has the?details.
Speaking of pricing, managers have been leaning on teaser rates to draw investors into new strategies. The aim is to help managers escape what one analyst described as "the valley of death," which is where funds with less than $100 million in assets — commonly cited as the threshold for profitability and scale needed to get gatekeepers' attention — tend to get stuck.?Franklin Templeton, for its part, in May began waiving the 125 bp-management fees on its private credit interval fund run through affiliate?Benefit Street Partners, Alyson Velati?reports. The waiver on the fund, first launched in October 2022, remains in place through April, disclosures and advertisements show. Credit strategies account for about 58% of interval fund assets, with?Cliffwater?dominating the space. Such products represent another hot area for product development, with companies including?Global X?and?T. Rowe?recently unveiling plans to jump in.
A less partisan rule regime??House Republicans last week moved to?kill?the?Department of Labor's fiduciary rule. The rule, which resurrected an Obama-era regulation, may be among the top poster children of on-again-off-again rulemaking. Upon moving into office, the Trump administration first chose not to enforce the effective date for the Obama version of the rule, which ultimately was vacated in federal court. The Biden administration then reintroduced a version of its own. The effect on the industry, which spent untold millions on preparing for compliance, is a type of "regulatory whiplash" that one high-profile industry lawyer told?David Isenberg?could stop with recent US Supreme Court rulings?ending judicial deference?and?loosening the limits?on when companies can challenge rules from government agencies.
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I Want My ETFs
A recent survey of advisors by Ignites Research indicated that 72% want exchange-traded shares of existing mutual funds,?Melat Kassa?found. What's more, ETFs are the product type advisors see shifting toward most. The?Securities and Exchange Commission?has a long list of firms lined up for permission to do so, but so far?Vanguard?remains the only company with that option.
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