Why Mutual Fund Fees Are a Boon to ETFs
February 12th at 6:00am by Tom Lydon
Distraught investors who have seen their money drain away in mutual funds may consider exchange traded funds (ETFs) if fees in mutual funds continue to increase.
Fund advisers who lost revenue will be provided a helping hand by fund boards seeking to hold fees steady or even slightly increase them, reports David Hoffman for InvestmentNews. Revenue has plummeted as mutual fund assets fell from $12 trillion in 2007 to $9.6 trillion at the end of last year.
The fees charged will be appropriately allocated in a way that does not result in a trade-off of performance. Many fund management firms have trimmed some non-essential employees and there are talks of a second round of layoffs.
Market conditions have shareholders feeling that they should not be paying more when they already lost buckets of money. Votes to increase fees are unlikely. However, many funds need higher fees because of break points that lowered the price as assets increased will now have to be reversed as assets decrease.
The fund board will also be looking at fair-value pricing. After funds shed a large chunk of their assets, the need to realign or merge funds is starting to be a possibility. This way a fund adviser may avert fee increases or lessen the impact of cutbacks.
