NYT article on fund pricing, negative fees and securities lending

A Price War Has Driven Fund Fees to Zero. They May Be Set to Drop Further.

Investment fees have dropped so low that you may have assumed they have gone as far as they can, and the cost-cutting story is just about over.

Well, think again. Something mind-boggling is on its way.

Fees are on the verge of falling below zero. Major companies will soon be paying customers to invest with them. That, at least is the conclusion of the investment research firm Flowspring, which says the fund price wars are about to be fought in the previously unexplored territory of negative fees.

“Zero may seem to be the lower bound for fees, but it’s not,” Warren Miller, Flowspring’s chief executive, said in an interview. “As we’ve learned from interest rates, zero is a psychological barrier, not a real one. The fund industry is tottering on that barrier right now. Negative fees are coming.”

Vanguard, for example, says that for several of its low-cost index funds, the revenue that flows back into the funds from securities lending is so great that there is effectively no net cost to investors right now. In fact, the reverse is true: “You could say these funds are paying investors to hold them, but we’d never promote it as such,” John Woerth, a Vanguard spokesman, said in an email.

Fidelity, which has been slashing costs and offers index funds that are cheaper than comparable Vanguard funds, also funnels securities-lending revenue back into its index funds. “We’re doing everything we can to keep costs low for our investors,” said Kathleen Murphy, president of Fidelity Investments’ $2.4 trillion personal investing business.

The full article is available at https://www.nytimes.com/2019/04/05/business/price-war-fund-fees-zero-negative.html

Related Posts

Previous Post
MarketAxess and Virtu Financial partner on global ETF and Fixed Income trading
Next Post
BIS research: bigtech and the changing structure of financial intermediation

Fill out this field
Fill out this field
Please enter a valid email address.


Reset password

Create an account