Asset Managers Face the Zero-Fee Gauntlet

Fidelity’s move toward reduced-fee and fee-free index funds will likely spawn copycats — a trend Moody’s Investors Service believes is generally positive for the industry.

The credit positive assessment is a counterintuitive one: Price wars are generally an unwelcome event in any industry. But the ratings agency was approving of the firm’s recent decisions to cut prices on its existing index funds by 35 percent and launch two new index funds that won’t charge any management fees.

“The change in format shows that Fidelity is able to offer basic asset management products as a loss leading service,” Moody’s wrote in its second quarter report on asset management. The firm believes BlackRock is particularly well positioned to offer loss-leader products as a relationship builder that will lead to the sale of more profitable funds and services.

In the report, Moody’s said that industry net flows were the worst since the second quarter of 2016. Excluding BlackRock, which has had consistent net flows into passive funds, the asset management industry lost a net $29.7 billion in assets during the quarter. Fees for publicly traded asset managers rated by Moody’s were essentially unchanged, despite continued pressure from investors. Fees averaged 33 basis points, down from 34 basis points a year ago. When Moody’s excluded BlackRock and its massive lineup of low-fee passive funds, fees were 47 basis points on average.

Moody’s said that fees are holding steady primarily because investors have shifted their portfolios towards higher-cost equity funds.

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According to the ratings agency, revenues of publicly traded asset managers increased 6.3 percent from a year ago. But when BlackRock was excluded, revenues were only up 4.4 percent because of declining performance fees.

“这远低于标普500指数整体10%的平均销售增长率，突显出资产管理公司在市场估值已经很高且面临上涨挑战时所面临的挑战，”该报告的作者包括高级分析师迪安•昂格（Dean Ungar）写道。

Still, despite these challenges, Moody’s outlook for the sector is stable. It said the industry is adapting to the macro environment, even as investors continue to pull their money out of higher-fee U.S. equity funds and shift it to generic passive products. In response, active managers are being creative and launching new products to capture the attention of investors, as well as mixing passive products into broader active strategies to reduce overall costs. Asset managers are also making changes to their sales and marketing practices and controlling their costs better.

In the bond markets, assets managers’ active mutual funds pulled in money even if the amount was lackluster. Industry experts have long said that actively managed bond funds are less subject to competition from passive alternatives, in part because active bond managers have a better long-term track record of beating benchmarks. But that argument may be losing traction. Active mutual funds gained $24 billion in the fourth quarter, the lowest flows since the fourth quarter of 2016, when investors pulled $16.5 billion following the presidential elections.

投资者are, however, increasingly using exchange-traded bond funds, which are being touted as a way around the illiquid bond markets where it’s harder to sell individual securities. Bond ETFs gained $31.7 billion of net inflows in the second quarter, double the amount seen in the first quarter.