Hennessy versus Bogle in fund-fee spat

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Hennessy versus Bogle in fund-fee spat

Postby Barry Barnitz » Tue Sep 14, 2010 3:16 am

Hi:

Link: Hennessy versus Bogle in fund-fee spat

John Bogle should spend more time focusing on financial-services reform and less time pointing the finger at mutual fund managers if he wants to address rising fund costs, Neil Hennessy, president and chief executive of Hennessy Advisors Inc., wrote in a letter that appeared in today's The Wall Street Journal.


Hennessy
“Good fund managers often outperform low-cost index funds, and funds' performance is published net of fees, period,” . “I think that Mr. Bogle's time would be much better spent working on solutions to address the financial-regulatory-reform act, which will certainly increase costs to every single mutual fund shareholder.”


Bogle
In his piece (WSJ August 27), Mr. Bogle noted that fund costs rose to $42 billion from $50 million between 1960 and 1990 — an 800-fold increase — while equity fund assets grew to $5 trillion from $10 billion, a 500-fold jump.

“Conclusion: The huge economies of scale available in managing other people's money have largely been arrogated by fund managers to their own benefit, rather than to the benefit of fund shareholders.”


Hennessy
For one of our typical funds, federal and state registration fees have increased 44%, legal fees have increased 73%, and audit fees have increased 30%.”

Also, while no-transaction fee platforms didn't exist in the 1960s, today funds pay as much as 40 basis points to be on the platforms offered by the likes of The Charles Schwab Corp. and Fidelity Investments


Don Phillips
His grievances are shared by many in the fund industry, said Don Phillips, a managing director at Morningstar.

“I think a lot of people would be afraid to do what Neil did and that is to out the distributors,” he said. “The asset managers are taking all the blame for high fund expenses, while the distributors are completely off the radar.”


regards,
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Postby asset_chaos » Tue Sep 14, 2010 5:56 am

Hennessey, a fine cognac, but for financial wisdom in my interest I'll contine to drink Bogle.
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Postby jeffyscott » Tue Sep 14, 2010 10:59 am

While the point may be valid...

Are there any funds that manage to operate on these supermarkets while featuring expense ratios below those that Hennessy funds charge? I'm pretty sure there are at least one or two that manage this while having ERs below the 1.3-1.7% of the Hennessy funds.
press on, regardless - John C. Bogle
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Postby stratton » Tue Sep 14, 2010 12:32 pm

There has been a flood of money moving out of managed mutual funds into index mutual funds and etfs which are essentially index funds lately. This has been going on somewhat for 10+ years, but when there is a down turn it spikes up. One interesting aspect is money that moves to indexes generally doesn't return to managed funds. The percentage of assets under management for passively managed funds keeps creeping up...threatening the active managers and slowly cutting their income over time.

Encourage anyone in the Hennesey funds to find a cheaper manager.

Paul
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Postby lapac1 » Thu Sep 30, 2010 5:52 pm

Hennessy is right in at least one sense - by his choosing to offer his funds through NTF supermarkets like Schwab and Fidelity, he is forced to pay out 35 - 40 bpts. to these platforms in order to distribute his funds. But he then marks up his management fee accordingly to cover that cost. His alternative would be to self distribute on his own and save his investors the 35- 40 bpts. distribution expense. As JCB Jr. mentioned, that was his choice to make, to the detriment of his investors.
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Postby pointyhairedboss » Thu Sep 30, 2010 6:15 pm

It would be ideal if a mutual fund were able to offer different share classes of the same fund - a higher e/r for the shareclass in an ntf super market, and a lower e/r for the shareclass sold directly by the fund house. Unfortunately, the super markets won't allow that. For a small boutique fund shop, participating in a super market is a must. Hennessy has a valid complaint here.
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Postby sommerfeld » Thu Sep 30, 2010 6:57 pm

asset_chaos wrote:Hennessey, a fine cognac, but for financial wisdom in my interest I'll contine to drink Bogle.

See also http://www.boglewinery.com/

They make decent wine.
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Postby stratton » Thu Sep 30, 2010 7:01 pm

pointyhairedboss wrote:It would be ideal if a mutual fund were able to offer different share classes of the same fund - a higher e/r for the shareclass in an ntf super market, and a lower e/r for the shareclass sold directly by the fund house. Unfortunately, the super markets won't allow that. For a small boutique fund shop, participating in a super market is a must. Hennessy has a valid complaint here.

Hennesy can help investors by lowering *his* fees. He knew the fund supermarket rates befor signing the contract. He doesn't have to be NTF. He can solve his AUM problems with better returns except recently his returns haven't been so good so lower assets under management.

Paul
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Postby Adrian Nenu » Thu Sep 30, 2010 7:20 pm

Hennessy's cognac and Bogle's mutual funds - two big winners.

Adrian
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Postby asset_chaos » Thu Sep 30, 2010 8:39 pm

sommerfeld wrote:
asset_chaos wrote:Hennessey, a fine cognac, but for financial wisdom in my interest I'll contine to drink Bogle.

See also http://www.boglewinery.com/

They make decent wine.

I've had Bogle wine. It's tasty and good value. I particularly like their petite syrah. No connection between the wine and Jack Bogle that I'm aware of.
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Postby atwood » Fri Oct 01, 2010 7:53 am

pointyhairedboss wrote:It would be ideal if a mutual fund were able to offer different share classes of the same fund - a higher e/r for the shareclass in an ntf super market, and a lower e/r for the shareclass sold directly by the fund house. Unfortunately, the super markets won't allow that. For a small boutique fund shop, participating in a super market is a must. Hennessy has a valid complaint here.

There's no reaon he can't do what you suggest. Selected Funds does that.
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