Ariel Board Pushes Lower Fund Fees

  • CEO says company has been ratcheting back fees on global funds
  • Growth of indexing is distorting market, Rogers says

John Rogers, chairman and chief executive officer of Ariel Investments LLC, said his $11.8 billion mutual fund firm is cutting fees partly in response to input from board members.

Over a series of meetings, directors have recommended that fees on Ariel funds should be at the industry average or lower, Rogers said in a Bloomberg Television interview Monday. To stay competitive with its rivals and counter the shift to passively managed products, Ariel, a Chicago-based value investor that buys cheap stocks, has been ratcheting back charges on some offerings including its global funds, he said.

"In this environment, fees matter so much, you’ve got to make sure you’re on the lower end of the fee structure," said Rogers. "The fee compression is real."

John Rogers, chairman and chief executive officer of Ariel Investments LLC, discusses the firm’s strategy.

(Source: Bloomberg)

Investors have been flocking to passively managed index mutual and exchange traded funds for their lower fees and better performance. In the U.S., they poured more than $700 billion into passive mutual funds and ETFs in the 12 months through July while withdrawing a net $214 billion from actively managed ones, according to a report by Morningstar this month.

The shift has put active managers under pressure to reduce costs and improve returns. It’s been particularly difficult as a lot of institutional clients have moved their domestic equities into index and ETFs, Rogers said.

"You get calls from clients who say we are indexing everything irrespective of your 34-year performance," he said. "That is extremely challenging.”

Rogers founded Ariel in 1983 and specializes in finding undervalued, out of favor small and mid-cap stocks. The growth of indexing is distorting the stock market, Rogers said, but value-based investing will eventually come back into favor once there is a stock-market correction of 10 percent to 15 percent.

"When people buy stocks irrespective of valuation, that always ends badly," he said.

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