Vanguard mutual fund managers are getting increasingly nervous as the high cost of their investments has risen, raising the prospect of a new wave of cheap fund management.
The fund managers at the world’s biggest fund managers have been watching closely as the price of their high-yield bonds, which are typically used to fund high-cost mutual funds, have fallen sharply.
But the fund managers aren’t letting the situation pass them by.
In the past few weeks, the managers have begun making calls to investors who are buying high-quality funds that they say have more flexibility to grow, and they are trying to lure them back into the investment.
Vanguard’s chief financial officer, David Schubert, said in an interview on Monday that he is “very concerned” about the trend and wants to help managers “stay on top of the market.”
“I want to see more managers doing what we call ‘low cost’ investing, where we put the money into high-return, high-growth funds,” Schuber said.
“We’re getting a lot of calls from investors asking for advice on how to get into high quality funds, and I think there’s some good advice out there.”
Schubert said the fund companies are working with their fund companies to help the fund investors understand how the high-value investments work.
“We have a pretty good understanding of what low cost investing is, but I don’t want to talk too much about it,” Schubbs said.
“The problem is that there are a lot more funds out there, and so there are more funds and more options.”
A study by the investment consulting firm Investec found that high-fee funds are outperforming low-fee ones by an average of more than 10 per cent.
According to the study, a fund manager’s performance is typically influenced by a combination of factors, including: the fund’s risk profile; the management team’s ability to sell a particular investment; and the firm’s ability or willingness to take a certain risk.
However, the investment advisory firm Lazard said that high fees have had a negative impact on fund managers, with the fund manager having to take on more debt, and with the company’s assets increasing.
A report by the New York-based Investment Research Institute found that fund managers had less cash than their peers, with a net cash outflow of $9.4 billion in the past year, and that in a hypothetical 20-year time frame, the average fund manager would have to put a further $17 billion in capital into operations.
Investment Research Institute director Mike Cavanaugh said the high costs of the fund management industry have caused some fund managers to look for other ways to grow.
“Fund managers are becoming increasingly nervous about the pace and scope of their fund growth and are looking to other fund strategies that can be done on a much smaller scale,” he said.
A spokesman for Vanguard declined to comment.