Top mutual funds to disclose new active-management metric
With the Trump administration slowly rolling back regulations, state governments are taking consumer protections into their own hands.
Thirteen mutual fund behemoths, including the likes of Vanguard, BlackRock and Goldman Sachs, have agreed to disclose more information about their actively-managed funds, after a new investigation by the New York attorney general’s office found retail investors have unequal access to important fund information.
The newly disclosed metric, known as Active Share, measures the percentage of stock holdings in a fund’s portfolio that differs from the benchmark, meaning investors can compare whether a similar passive fund is a better bang for the buck.
Active fund fees cost investors 4.5 times more per year than investments in passively managed products, according to the attorney general’s report that analyzed disclosures from more than 2,000 funds. And, higher fees did not necessarily mean a higher level of fund management.
“These new disclosures will give Main Street investors access to critical information before making investment decisions,” said New York Attorney General Eric Schneiderman, adding that the new agreement will help “level the playing field."
The disclosures affect 400 actively-managed mutual funds, says the attorney general. U.S. mutual funds currently manage more than $16 trillion in client assets.
While the major mutual fund providers already offer Active Share information to “well-heeled institutional and professional investors,” the firms gave unequal access to retail investors, says the attorney general.
“There is an idea out there that you should pay more for active management and that doesn’t make sense to me,” says Russ Kinnel, Morningstar’s director of manager research.
However, tracking Active Share is not essentially better for investors, Kinnel says. “It’s a descriptor," he says. "It’s not a predictor.”
Funds with high Active Share — meaning they diverge drastically from the benchmark — can hurt investors just as much as they can help, he says, depending on performance. “If I’m getting active management, I’m looking for skill and good strategy and a good team,” Kinnel says. “Active Share is just one of many data points that can help you understand how a fund works. It’s not a magic bullet.”
Joining Vanguard, BlackRock and Goldman Sachs in the agreement are AllianceBernstein, Dreyfus, Capital Group, Columbia Management, Eaton Vance, JPMorgan Chase, OppenheimerFunds, Nuveen, T. Rowe Price and USAA Asset Management. The 13 firms will begin publishing the new data point quarterly on their websites within the next few months.
Fidelity Management & Research, which was also part of the investigation, already publishes the metric.