SEC Filings | 8/24/2021
Because… The filing indicates that Capital Group, the parent of American Funds, is moving closer to launch its first ETFs. American Funds had $2.2 trillion of long-term fund assets as of June 2021, closely following iShares’ $2.3 trillion but far behind Vanguard’s $6.9 trillion. Last year, the asset manager bled $32.1 billion, compared to flows of $140.7 billion into Vanguard and $122.1 billion into iShares. It brought in $17.5 billion in 1H21, again, significantly lower than Vanguard’s $223.9 billion and iShares’ $91.1 billion. Despite being the third largest long-term fund manager, American Funds was surpassed by firms such as Fidelity, SSGA, Invesco, JP Morgan, and Schwab in terms of YTD sales, all of which have an established ETF presence. Considering ETFs’ strong sales of $466.3 billion in the first half of the year, the lack of ETF offerings undermined the competitiveness of American Funds. If Capital Group provides the new ETFs with seed funding as reported, it may become a key player in the actively managed ETF space.
Morningstar | 8/25/2021
Because… Morningstar’s annual U.S. Fund Fee Study revealed that the asset-weighted average expense ratio for active funds fell to 0.62% in 2020 from 0.65% in 2019, whereas the asset-weighted average expense ratio for passive funds fell one basis point from 0.13% to 0.12% during the same 12-month period. Meanwhile, Morningstar found that the cheapest 20% of funds saw net inflows of $445 billion in 2020, with the remainder suffering outflows of $293 billion. The cheapest 5% of funds alone received $412 billion of inflows. This clearly demonstrates the appeal of low costs. Since active fund fees are still 50 basis points more than those for passive funds, we expect them to come down even further going forward. Investor enthusiasm for ETFs will entice more asset managers to deliver active strategies through the ETF wrapper. Some may follow the step of DFA and JP Morgan to convert more expensive mutual funds into cheaper ETFs. The shift to ETFs will result in lower overall fund fees, which will benefit investors even more.
CNBC | 8/26/2021
Because… Based on a GAO report, 40% of participants don’t fully understand fee information, and 41% don’t know they pay fees. The lack of fee knowledge reinforces the notion that financial services companies should work with plan sponsors to improve their educational efforts. Plan providers need to try harder to engage plan participants, as indifference may play a role in investor ignorance. If they do not disregard plan documents or learning opportunities provided, they will likely gain a better understanding of plan fees. Firms should find out why investors are not motivated to read plan materials carefully and what effective approaches can trigger their interest. Firms also need to ponder the language for the disclosure so investors can easily understand and digest the information. Since average investors may be challenged grasping differences among various cost items, it is the responsibility of service providers to make it as clear as possible.