Displaying items by tag: fulcrum

Monday, 22 April 2019 12:42

Why Flexible Fee Mutual Funds are a Winner

(New York)

The last year has seen a steady and encouraging rise of alternative fee structures in mutual funds. In particular, a number of managers have adopted so-called fulcrum structures to their mutual funds. All of these funds charge a low or zero base fee, and then a performance fee for outperformance of their relevant benchmark. The idea is that customers only have to pay up for services that actually outperform benchmarks. Some providers that now offer these funds include AllianceBernstein, Fidelity, Allianz, and Fred Alger. The main criticism of the funds that is that they can skew incentives and push managers to take outsized risk in order to produce upside.


FINSUM: These funds are not without their imperfections, but they are a useful and thoughtful response by mutual fund managers who are realizing they need to do more to justify their raison d’etre versus ETFs. We think they are a good deal for investors because if the results aren’t good, you pay very little, if they are great, you pay for it. Compare that to an ETF, where you are never going to outperform, but will likely pay more than 10 bp.

Published in Wealth Management
Thursday, 07 March 2019 11:46

3 Cheap Dividend Funds

(New York)

“Cheap dividend” is a welcome phrase for many advisors. Income investments are precious, especially as clients age, but inexpensive and good-performing dividend funds are not quite as easy to find as one might expect. With that in mind, here are few names to consider: the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD), the Oppenheimer S&P Ultra Dividend Revenue ETF (RDIV), and the Wisdom Tree US Quality Dividend Growth ETF (DGRW). The first two average just under 4% yields and have fees well under 40 bp. The Wisdomtree fund seeks dividend growth names, has lower yields, and costs 28 bp.


FINSUM: We are fans of the high dividend and low volatility approach, so quite like the Invesco fund here. LeggMason also has another good option with that theme, LVHD.

Published in Eq: Dividends
Tuesday, 05 March 2019 11:44

The Best New Fund Fee Structures

(New York)

Fund fees are a hot area, and not just in terms of them falling in absolute terms. While everyone is aware of Fidelity’s new zero fee index funds and the price war going on in top line fees, there are also new and interesting fund structures emerging. One kind of new fee model is called a fulcrum structure, where fees are low (ETF-like) unless the funds outperforms its benchmark, in which case the provider gets a performance fee. This kind of structure is more popular with mutual funds and can offer the best of both worlds—low fees for ordinary performance, or outperformance that comes with active management.


FINSUM: We think these kinds of funds offer a better alignment of interest while offering multi-sided benefits. However, the risk is that managers are incentivized to take excess risk in an effort to boost performance over the fulcrum threshold.

Published in Wealth Management

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