Page 21 - Investment Advisor - October 2021

7. THERE WILL BE HIGHER TAXES. back up to 35%, while there will be “some Google (FAANG) stocks like we saw
Personal and corporate taxes will tightening on the estate tax” and a lifting with the dot-com stocks years ago. “I
increase later this year, he said. But of the state and local tax (SALT) deduc- just think they’re going to underperform
Biden and the Democrat-led Congress tion cap, “but maybe not fully,” he said. because when you take a look at their
will not be able to raise taxes on the potential future growth, relatively, the
wealthiest Americans as much as Biden 8. BOTH INFRASTRUCTURE BILLS valuation differences are just so great,”
and many in Congress had wanted to, he WILL PASS. he said.
predicted. That will likely put further The bipartisan infrastructure bill will
pressure on the dollar. pass and then the Democrat-only infra- 10. THERE MAY BE A CORRECTION
“Basically, they are going to repeal structure bill also will pass, boosting OR A BEAR MARKET IN THE NEAR
some of the Trump tax [cuts],” he said, taxes as a result. FUTURE.
predicting: “They’re going to raise the There may “absolutely” be a correction
marginal rate back up” to a maximum of 9. FAANG STOCKS WILL FALTER. or a bear market in the next three to five
39.6%. Oher predictions: The corporate “We’re not going to have a crash” of the years, he said. But he warned investors
rate will rise to about 24-25% rather than Facebook, Amazon, Apple, Netflix and not to wait for that.

Falling Fund Fees Saved Investors $6.2B in

2020: Morningstar

orningstar’s annual fund fee KEY FINDINGS This “greenium,” however, has been
Msurvey, released in late August, The asset-weighted average expense shrinking, according to the analysis. Over
showed that between 2000 and 2020, ratio fell to 0.41% in 2020 from 0.44% in the past decade, sustainable funds’ equal-
the asset-weighted average fee fell to 2019. As a result, Morningstar estimates weighted average fee has fallen 27%, while
0.41% from 0.93%, a saving of billions that investors saved some $6.2 billion in the asset-weighted average fee paid by
of dollars for investors. The analysis fund expenses last year. investors in these funds has dropped 38%.
excluded money market funds and funds The asset-weighted average expense This has been driven by the introduction
of funds. ratio for active funds fell to 0.62% in of numerous low-fee sustainable index
Morningstar noted that much of 2020 from 0.65% the year before. The mutual funds and ETFs to the menu, many
the documented decline in fees can main driver was large net outflows from of which have gained favor with investors.
be attributed to the fact that inves- expensive funds and share classes and, Low-cost funds generally have great-
tors have been allocating more of to a lesser extent, inflows to cheaper er odds of surviving and outperforming
their investment dollars to low-cost ones, according to the study. their pricier peers, the study found. In
index mutual funds and ETFs and that Steady flows into the lowest-cost 2020, the cheapest 20% of funds had
those funds have been slashing their funds caused the asset-weighted aver- net inflows of $445 billion, while the
expense ratios. age expense ratio for passive funds to remainder suffered outflows of $293
billion. The cheapest 5% of funds alone
“The fact that fees have been reduced
fall to 0.12% in 2020 from 0.13% in 2019.
LILA PHOTO for TD Ameritrade Institutional natural,” Ben Johnson, Morningstar’s plummeted, by 66% for the former and of the economics of the advice business
Between 1990 and 2020, asset-weighted
to either nothing or next to nothing
received $412 billion of inflows.
among broad-based index funds is only
fees across both passive and active funds
According to the study, the evolution
is shaping flows and fees. Bundled share
by 33% for the latter.
director of ETF and passive strategies
classes have been in outflows for the past 11
research, said in a statement.
Investors in sustainable funds are
years while semi-bundled and unbundled
“Given these funds’ commodity-like
paying what the study called a “greeni-
nature, it seems inevitable that their
share classes have enjoyed steady inflows.
um” relative to investors in convention-
Although its competition is close behind,
prices would be pushed down to the
al funds, as evidenced by these funds’
marginal cost of managing them and that
higher asset-weighted expense ratio,
Vanguard still claims the lowest asset-
weighted average expense ratio among
assets would consolidate in the hands of
which stood at 0.61% at the end of 2020
a few large-scale manufacturers.”
asset managers — 0.09% in 2020.
versus 0.41% for their traditional peers.
OCTOBER 2021 INVESTMENT ADVISOR 19