Week in Review - March 12, 2024
Shops Shake up Fund Structures, Fees
Welcome to this week's News Brief.
Several fund managers this month have laid out plans to change how they offer their strategies or structure them.
Pimco, for its part, said it is jumping on the mutual-to-exchange-traded fund conversion bandwagon.
The Newport Beach, California-based manager said it plans to convert its $141 million Mortgage-Backed Securities mutual fund to an ETF.
The strategy, which bled $19 million during the 12 months ending January 31, would keep its management team and basic investment objectives but shed its 12b-1 fees and, the firm said in a filing, the change would potentially provide shareholders "other benefits" as an ETF.
The switch is expected to occur in late September, pending board approval.
Pimco's website shows other mortgage-linked open-end fixed-income funds on its menu but no ETFs in the category.
Swapping the fund structure plugs that hole, a spokesperson told Ignites.
The March 1 filing didn't indicate fees, though it notes plans to close most share classes to new investors June 3.
Institutional shares of the existing mutual fund charge a 50 basis point management fee and 112 bp in total expenses.
It is Pimco's first fund conversion but part of an ongoing industry trend. To date, 73 mutual funds have morphed into ETFs, and a BNY Mellon report from last month shows that 44% of managers expect more.
Fidelity, JPMorgan and Dimensional Fund Advisors are among the biggest converts.
The product switches come as investors in taxable accounts (and their advisors) flock to the ETF structure.
Industry-wide, long-term mutual funds saw investors pull $515.5 billion for the 12 months ended Jan. 31, according to data from Morningstar Direct.
ETFs, meanwhile, took in $626.9 billion, the Chicago-based tracker reports.
But conversion isn't the only path.
Guiness Atkinson recently joined the queue of fund shops that have asked the Securities and Exchange Commission to allow them to launch an ETF-share class off existing funds. Vanguard had a patent on that process that expired last May. Since then PGIA, Dimensional Fund Advisors, F/m Investments, Fidelity, Morgan Stanley Investment Management and First Trust have all sought (but not yet received) permission, too.
That may be because Vanguard is in a class of its own when it comes to ETF sales.
The Malvern, Pennsylvania-based manager clocked $49.2 billion in net new money to such products during the first two months of 2024, more than the next nine top sellers combined, according to data from Morningstar.
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Separately last week, Fidelity rejiggered how it structures expenses on 215 of its mutual funds. The Boston-based firm has moved to a unitary fee across the swath of strategies, rolling administrative and other operational costs into the management fee line.
In the near term, the changes will shave a few basis points off the total expenses for shareholders most of the affected funds and slim down the expense table.
Management fees now vary by share class, filings show.
In general, more streamlined fee structures can make it easier when going to a fund board to propose a change, such as a conversion or new type of share class, industry sources note.
There is no indication in the filings or public statements that Fidelity has any such designs.
Video of the Week: Sticking Around
Tunover at asset managers has slowed compared to a year ago. Ignites research explored whether it's morale or markets keeping people around. Click the image below for a video recapping the results from Ignites Research.
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Absolutely loving the insights! 😊 Investing in mutual funds and ETFs reminds me of what Warren Buffett advocates - the importance of understanding the investments we make. Keep sharing! 🚀
Realtor Associate @ Next Trend Realty LLC | HAR REALTOR, IRS Tax Preparer
9moThank you for Sharing.