Commentary May 02, 2022 at 07:44 AM Share & Print
What You Need to Know
- Capital Group has lowered fees on 18 of its funds, it announced Monday.
- The announcement came after rival Vanguard said Friday it was reducing expense ratios on four bond ETFs.
- But Vanguard also increased expense ratios on two other funds.
Capital Group, the parent of American Funds, has lowered fees on 18 of its funds by revising initial fee breakpoints in a move the company said Monday is expected to save more than $20 million for investors in those funds within the first year of the reductions.
The announcement came after rival Vanguard said Friday it reduced expense ratios on four broadly diversified bond exchange-traded funds in a move representing $8.8 million in aggregate net savings for investors. However, Vanguard also increased expense ratios on two other funds.
Capital Group’s reductions were on funds with current assets of under $15 billion.
Pointing to its history of being a low-cost active manager, the company said that, as of May 1, 93% of its fund management fees were expected to be in the “lowest quintile of fees within its peer group,” vs. 84% as of March 31.
“At Capital, we have a long history of sharing the benefits of scale with our fund shareholders through lower fees,” Mike Gitlin, a member of Capital Group’s management committee, said in a statement.
He added: “Small differences in investment outcomes — just a few basis points — can compound over a lifetime and drive vastly different experiences for people.”
Several of the funds for which Capital group cut fees are fixed income funds. “Fixed income continues to be a strong growth area for Capital Group with assets under management more than doubling in the last five years and now just shy” of $500 billion, according to the firm.
American Funds Multi-sector Income Fund, Capital Group’s newest bond fund, which is included in the fee reductions, has a three-year track record with results in the highest quartile, the company said.
Which Funds Got Fee Cuts?
Of the 11 fixed income funds with five-year track records that have had fee reductions, nine are in the top two quartiles for results (or 82%), Capital Group said.
The 11 fixed income funds to get management fee reductions include the: American Funds Corporate Bond Fund, lowered to 0.25% from 0.36%; AF Emerging Markets Bond Fund (0.46% from 0.55%); AF Multi-Sector Income Fund (0.33% from 0.42%); AF Strategic Bond Fund (0.28% from 0.30%); and AF Mortgage Fund (0.18% from 0.19%).
The Short-Term Bond Fund of America and AF Inflation-Linked Bond Fund have each been reduced to 0.25% from 0.26%.
The other fixed income funds to get management fee reductions were the: AF Short-Term Tax-Exempt Bond Fund (0.20% from 0.33%); AF Tax-Exempt Fund of NY (0.24% from 0.29%); AF Tax-Exempt Fund of California (0.23% from 0.26%); Limited Term Tax-Exempt Bond Fund of America (0.18% from 0.20%); and American High-Income Municipal Bond Fund (0.24% from 0.25%).
Three Capital Group equity funds got management fee reductions: American Funds International Vantage Fund, to 0.48% from 0.60%; American Funds Developing World Growth & Income Fund, to 0.65% from 0.73%; and American Funds Global Insight Fund, to 0.41% from 0.42%.
Meanwhile, the Capital Group Emerging Markets Growth Fund was reduced to 0.62% from 0.76%, and two of its American Funds Insurance Series were reduced: the VI Ultra Short Bond Fund, to 0.26% from 0.32%, and VI International Fund, to 0.48% from 0.49%.
Vanguard Fee Changes
Vanguard made expense ratio changes for six funds across multiple ETF and mutual fund share classes with fiscal years ending December 2021, it said.
Explaining why it made the fee changes, Vanguard said its “investor-owned corporate structure enables the firm to return value to shareholders through lower costs and reinvestments to improve capabilities, technology, and client experience.” Changes to expense ratios “occur for a variety of reasons, including asset growth and operational efficiencies,” it said.
On “most of Vanguard’s external advisory arrangements, the advisor’s fee is also subject to an adjustment up or down based on their investment performance relative to the total return of an appropriate benchmark,” it explained. “Expense ratio changes may also reflect other types of portfolio management expenses.”
For the Vanguard Market Neutral Fund and other funds that use long- and short-selling strategies, expense ratios can also include borrowing expenses and dividend expenses on securities sold short, it added.
Getting reduced fees were the Vanguard Total Bond Market ETF (to 0.03% from 0.035%) and the Vanguard Intermediate-Term Bond ETF, Vanguard Long-Term Bond ETF and Vanguard Short-Term Bond ETF (each to 0.04% from 0.05%).
But the Vanguard Managed Allocation Fund’s expense ratio increased to 0.31% from 0.28%, while the expense ratios on both versions of its Vanguard Market Neutral Fund increased: to 1.31% from 1.18% on investor shares and to 1.25% from 1.12% on institutional shares.
Vanguard managed $8.1 trillion for about 30 million clients as of March 31, while Capital Group managed over $2.7 trillion in equity and fixed income assets as of Dec. 31, the companies said.