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Rating:Rekenthaler: Only Email Routing List Email & Route  Print Print
Friday, May 31, 2013

Rekenthaler: Only "Cheap" Shares are Getting Flows

News summary by MFWire's editors

You can always trust the people at Morningstar in this case John Rekenthaler to find the essence of a point and then drive that point home using the numbers only they have. Yesterday MFWire pointed out Burton Malkiel's opinion piece in the Wall Street Journal and why he might be wrong. Almost at the same time, Rekenthaler gave the numbers that supports that point and why they may not matter.

Rekenthaler seconds the point that the change in how the fund industry pays for distribution is warping the numbers (in essence, commissions have become backed in to the expense ratio through the use of 12b-1 fees and the shelf-space fees paid to fund supermarkets).

He uses the Morningstar numbers to an even more important point that even many fund chiefs may not yet realize. Indexing has already won.

Nearly all net fund flows are now going to index funds (including ETFs) or to institutional share classes. Those institutional shares are pretty much the only way financial advisors and 401(k) plan sponsors are willing to buy mutual funds today, writes Rekenthaler.
Over the trailing 12 months, the 10 best-selling mutual funds have been five index funds, five institutional funds, and zero--count 'em, zero--actively managed retail share classes.

And yes, after a long hiatus John Rekenthaler is back with a daily column for Morningstar. That column first ran at the turn of the century and was revived for a short time a few year later. Expect to hear more insights about what is going on inside the fund industry from him.

Read the whole story on Malkiel's column by Rekenthaler here. He reintroduced his daily column here. The article archive for the new column can be found here.  

Edited by: Sean Hanna, Editor in Chief


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