1) Equity and Hybrid Mutual Fund Expense Ratios in 401(k) Plans Continued Downward Trend in 2019
ICI | 7/27/2020
Because… The finding from the ICI research report that shows 401(k) plan participants tend to hold lower-cost mutual funds is not unexpected, but the fee decline over the past 10 years was quite substantial. The asset-weighted average expense ratio for equity mutual funds in 401(k) plans dropped to 0.39% as of 2019 from 0.70% in 2010, consistent with the decrease of the average expense ratio for equity mutual funds in the industry from 0.83% to 0.52% during the same 10-year period. We believe the trend toward low-cost funds will continue down the road as plan sponsors remain focused on providing savings for employees. Their fiduciary responsibilities have also driven them to use cheaper fund options to avoid fee-related litigation. According to Callan’s 2020 Defined Contribution Trends Survey published in January, two-thirds (66.7%) of plan sponsors are either somewhat or very likely to switch to lower-fee share classes in 2020, indicating their commitment to cost savings.
2) Wells Fargo Plans to Offer Its First ETF
ThinkAdvisor | 7/28/2020
Because… Wells Fargo, with long-term fund assets of $78.9 billion as of June, ranked #38 among all long-term mutual fund and ETF managers, based on Morningstar data. In the U.S. retail market, the firm experienced net outflows of $4.4 billion in 1H20 and $3.2 billion during 2019. The introduction of the firm’s first ETF, if welcomed by investors, could make up for some losses on the mutual fund side. Industrywide, Ultrashort Bond ETFs had $101.9 billion of assets, up 14% from a year ago. The asset category gathered $10.7 billion this year through June, already surpassing its 2019 sales of $9.9 billion. Within this category, four ETFs had assets of more than $10 billion with the largest boasting $23.0 billion. Eight other ETFs held over $1 billion each. Out of 29 Ultrashort Bond ETFs, only four had assets of less than $100 million as of June 30, 2020. This suggests that Wells Fargo Ultra Short Duration Income ETF could face fierce rivalry in the marketplace.
3) State Street Global Advisors Launches S&P 500 ESG ETF
State Street Global Advisors | 7/28/2020
Because… The new SPDR S&P 500 ESG ETF (EFIV) comes with an expense ratio of 0.10%. DWS just reduced the expense ratio of its Xtrackers S&P 500 ESG ETF (SNPE) from 0.11% to 0.10%. Among all U.S. Equity ESG ETFs, IQ Candriam ESG US Equity ETF charges the lowest fee of 0.09%. Three others – iShares ESG MSCI USA Leaders ETF, iShares ESG Advanced MSCI USA ETF, and Xtrackers MSCI USA ESG Leaders Eq ETF – also have an expense ratio of 0.10%. U.S. Equity is the largest asset class in the ESG ETF arena in terms of both number of funds and assets. Large Blend dominates the space with 16 out of 23 U.S. Equity ESG ETFs and 91% of the U.S. Equity ESG ETF assets. The launch of EFIV (which already amassed $25.8 million of assets in the first four days of trading) and price reduction of SNPE will make the competition in this increasingly crowded field even more intense.