6 ms·

You can't run most active management strategies on anything approaching the average passive fee structure. Additionally, you run into problems with scale. An S&

by whatok 7y ago

You can't run most active management strategies on anything approaching the average passive fee structure. Additionally, you run into problems with scale. An S&P 500 tracking fund scales extremely well and could add several billion of AUM without having to incur additional expenses. A long only equity fund would probably not be able to do the same without hiring more people, building more infrastructure, etc.

pwthornton 7y ago
I get that the fees can't be comparable, but without passive management, active management fees are unchecked, and they rose a lot over time. I'm willing to agree that it should cost an order of magnitude more for an actively managed fee, but most are beyond that. A lot of this seems like plain greed to me, combined with grift and graft. A lot of workplace plans try to funnel people into actively managed funds that often charge really high fees.
- whatok 7y ago
  I'm not sure how fees are unchecked. Active management fees have fallen quite a bit over the past 5+ years. A lot of mediocre managers have gone out of business and many more probably will as well. Additionally, new fund launches are near all-time lows.
dlp211 7y ago
But there is no reason that they need to be so high. Vanguard Primecap is like .45. Unfortunately it's closed to new investors.
- whatok 7y ago
  Define "so high". If fees are too high, why is anyone paying them? How do you determine what's high?
  - pwthornton 7y ago
    People are fleeing to index funds, which is what is spurring posts like this. There are all of these complaints from people who run actively managed funds, never once mentioning that the fees might be why so much capital is going to passively managed funds. People like myself who invest exclusively in index funds do so because the fees charged by actively managed funds are not supported by performance.
    - whatok 7y ago
      People are investing more in index funds because we've had a ten year bull market and index fund fees have dropped in an attempt for competition for assets. Most active management is probably not appropriate for most individual investors because their investment needs and timelines are much different than high net worth individuals/pensions/foundations, etc.
jcfrei 7y ago
Lots of active funds just change the weights of their capital allocation a bit compared to their benchmark. So there's not necessarily more people or infrastructure required - just analyzing a few companies in more detail.

by whatok 7y ago

pwthornton 7y ago

I get that the fees can't be comparable, but without passive management, active management fees are unchecked, and they rose a lot over time. I'm willing to agree that it should cost an order of magnitude more for an actively managed fee, but most are beyond that. A lot of this seems like plain greed to me, combined with grift and graft. A lot of workplace plans try to funnel people into actively managed funds that often charge really high fees.

whatok 7y ago
I'm not sure how fees are unchecked. Active management fees have fallen quite a bit over the past 5+ years. A lot of mediocre managers have gone out of business and many more probably will as well. Additionally, new fund launches are near all-time lows.

dlp211 7y ago

But there is no reason that they need to be so high. Vanguard Primecap is like .45. Unfortunately it's closed to new investors.

whatok 7y ago
Define "so high". If fees are too high, why is anyone paying them? How do you determine what's high?
- pwthornton 7y ago
  People are fleeing to index funds, which is what is spurring posts like this. There are all of these complaints from people who run actively managed funds, never once mentioning that the fees might be why so much capital is going to passively managed funds. People like myself who invest exclusively in index funds do so because the fees charged by actively managed funds are not supported by performance.
  - whatok 7y ago
    People are investing more in index funds because we've had a ten year bull market and index fund fees have dropped in an attempt for competition for assets. Most active management is probably not appropriate for most individual investors because their investment needs and timelines are much different than high net worth individuals/pensions/foundations, etc.

jcfrei 7y ago

Lots of active funds just change the weights of their capital allocation a bit compared to their benchmark. So there's not necessarily more people or infrastructure required - just analyzing a few companies in more detail.