Low expenses the biggest trend in the fund industry, experts say

But smart beta is red hot, too, according to panelists at the 2016 Thomson Reuters Lipper Alpha Forum in New York

Mar 22, 2016 @ 3:30 pm

By John Waggoner

Smart beta may be the most popular new strategy for mutual fund companies, but the real trend is towards funds with lower expenses.

Speaking at the 2016 Thomson Reuters Lipper Alpha Forum Tuesday in New York, a panel of three industry experts saw smart beta — essentially rules-based index funds — as the one new trend for 2016. But the low fees were the focus of all three panelists. The panel was moderated by InvestmentNews' senior columnist Jeff Benjamin.

The panel agreed with what Vanguard has been saying for decades: Costs matter. “We study cash flow carefully, and what's been lost in the debate between active and passive is context,” said Francis Kinniry, principal at Vanguard's Investment Strategy Group. “It's the funds in the lowest quartile for cost that are capturing assets.”

Why the interest in smart beta? In part, because the trend represents a fusion of active, index and low-cost management, fund panelists said. Many smart beta funds combine various investing rules used by active managers with index funds at a low cost. “A recent study I read said that 70% of fund performance is due to factor exposure,” said Mark Carver, vice president of AQR Capital Management. “Some can be indexed, and we can get low-cost exposure to those.”

An instant poll of the crowd of industry executives showed that 59% felt that smart beta was a bigger threat to actively managed funds than indexed funds.

Nevertheless, few were willing to say that actively managed funds would go the way of the brontosaurus. For example, Vanguard runs more than $1 trillion in actively managed funds, Mr. Kinniry said. And Tim Gaumer, global director of fundamental research at Thomson Reuters, said that there will always be a certain percentage of investors who assume they can beat the market and look for managers they think can do that.

Not all of the panelists were enthusiastic about smart beta. Mr. Kinniry reiterated Vanguard's long-held distaste for smart beta, saying that funds that tilt towards growth or value are simply bets on growth or value, and that both approaches go in and out of style on Wall Street, with predictable results for investors. “Funds that take a rules-based, mechanical approach have found that the Vanguard Total Stock Market fund has been very difficult to beat,” he said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Where in the U.S. are RIAs growing the fastest?

InvestmentNews' deputy editor Robert Hordt talks to senior columnist Jeff Benjamin about his report on how registered investment advisers are faring in different regions of the country.

Latest news & opinion

Top 10 RIAs in the Northeast

These are the largest registered investment advice firms in the Northeastern U.S., in terms of assets under management.

10 predictions for financial advice in 2019

Deloitte expects these 10 changes will hit the financial advice business in 2019.

Midwestern magic? RIA assets soared nearly 30% there last year

Theories for what's driving the growth spurt abound, but it surpassed all other regions of the country.

8 apps advisers love for getting stuff done

We reached out to advisers to find out which apps they are using to run their business more efficiently.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print