Active share, that portion of mutual fund assets that are truly actively managed, will no longer be a mystery for many investors. As a result of an investigation by New York Attorney General Eric Schneiderman, 13 mutual fund companies will disclose the active share percentage of more than 400 actively managed equity funds on a quarterly basis starting this spring.
The companies include Vanguard, BlackRock, American Funds, Nuveen, T. Rowe Price and The Capital Group. Fidelity already discloses active share information, as does JPMorgan for all but one of its actively managed funds. (For a full list of the fund companies, see Mutual Fund Fees and Active Share.)
“These firms are taking an important step forward,” said Schneiderman in a statement. “I encourage all mutual fund firms to follow suit.”
“These new disclosures will give Main Street investors access to critical information before making investment decisions for themselves and their families,” said Schneiderman.
It will also make it easier for financial advisors to have that information and share it with clients, though Schneiderman notes that many professional and institutional investors are already privy to active share information while many retail investors are not.
“Whether investors choose to invest with a financial professional or not, they should have access to information they can use to educate themselves, compare funds and make informed investment decisions,” the report notes.
The AG’s report notes that individual investors who rely on the advice of brokers or financial advisors when choosing mutual funds would have been assured of receiving advice in their best interest for their retirement accounts if the Labor Department’s fiduciary rule had taken effect, but that is not the case currently. The White House has not decided against enforcing the rule, Congressional bills have been introduced to weaken or eliminate the DOL rule, and the SEC has yet to introduce its own fiduciary standard.
The report notes that fees in actively managed funds were almost 4.5 times more per year than fees in passive funds — an asset weighted average of 75 basis points versus 17 basis points in 2016 — but don’t necessarily reflect a high level of active management.
The AG investigation of more than 2,500 funds, however, found that almost 60% had expense ratios between 1% and 1.49%, or an average 1.23%.
Further analysis of about 2,000 funds, with average expense ratios between 55 basis points and 175 basis points, found that active share ranged widely, between 60% and 100%.
“There may be a limited relationship between fees and active shares,” the report notes. “An investor cannot look only to the fees charged to invest in a fund in order to understand and assess what portfolio of the fund has the potential to outperform (or underperform) the index.”
It notes that fund companies already provide investors extensive information including fund objectives, past performance, holdings and fees but often omit active share — a “valuable piece of information.”
Having that information will help investors “make more informed judgements about whether particular mutual funds are right for them … whether the fund’s fees are acceptable given the high degree of overlap with the benchmark.”
ThinkAdvisor contacted several of the 13 fund companies identified in the AG’s report to find out when they will be adding the active share information to their fund pages.
Vanguard said the information will be available on its U.S. websites in the coming weeks. BNY Mellon Investment Management plans to post active share data for its mutual funds at the end of April, and AllianceBernstein plans to do so in May.
JPMorgan noted that the information will soon be available for the only relevant fund that doesn’t already disclose active share: the JPMorgan Intrepid European Fund Class A (VEUAX) and T. Rowe Price said it will make active share data available for “certain” actively managed equity funds but doesn’t have a complete list or timetable yet.
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