A Look at Plunging ETF Fees

From Jason Zweig at the WSJ:

This past week, BlackRock, the world’s largest asset manager, cut management fees on some of its iShares exchange-traded funds to as low as 0.04%, or $4 on a $10,000 investment. Charles Schwab quickly followed suit.

But why stop there? Cambria Global Asset Allocation ETF, run by Cambria Investment Management of El Segundo, Calif., assesses a management fee of zero (although the funds it holds charge 0.25%). At least two ETFs in Europe have total expenses of zero, says Deborah Fuhr, managing partner of ETFGI, a research firm in London.

And why stop at zero? Why, my colleague Paul Vigna asked recently, can’t funds pay you to invest?

“Will someone leapfrog us and go to negative management fees?” asks Mebane Faber, manager of the Cambria ETF. “I’d love to see it. There’s a lot of room to wring out the excess fees in the fund industry.”

(…)

There’s another way to reduce the costs of ownership — although not to zero.

Federal mutual-fund regulations permit managers to charge higher fees when they beat the market if, but only if, they also charge lower fees when they underperform.

So how common are ​these so-called ​fulcrum fees? Thomson Reuters Lipper tracks 9,908 mutual funds; only 213, or 2.1%, charge them.

Advisor Shares Focused Equity ETF, a fund that launched on Sept. 21, charges 0.75%, which rises to as much as 0.85% if it outperforms its benchmark and goes as low as 0.65% if it falls behind. “If I beat the market, I get a bonus,” says the manager, Eddy Elfenbein. “If I don’t, you get a savings.”

Posted by on October 7th, 2016 at 11:59 am


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