Strategic Insight (SI), an Asset International company, asserted in a new report, “Are Short-Term Redemption Fees Still Needed?,” that market-timing activity largely aimed at taking advantage of arbitrage opportunities in international equity funds has become rare if it happens at all. As a result, SI said more than 400 individual funds have removed short-term holding redemption fees in recent years including offerings from Franklin Templeton, BlackRock, OpppenheimerFunds, MFS, Van Kampen, DWS, Dreyfus, Allianz, Pioneer, Artio, and others.
“Not surprisingly, many asset managers and their boards that instituted short-term redemption fees post-2003 have subsequently decided to remove these fees as they are no longer experiencing money movement directly related to market-timing issues and have concluded that the costs and inefficiencies of short-term redemption fees far outweigh their marginal benefits,” said SI author Dennis Bowden.
That leaves more than 1,500 actively managed, open-end stock and bond funds (managing more than a total of $1 trillion) that still have the charges in place. While the Domestic Equity category has the largest number of funds with redemption fees, International Equity funds constitute the largest in terms of total assets and second largest by number, according to SI.
Redemption-fee funds also constitute the largest share of total funds and total assets within the International Equity fund type, according to the SI data.
Bowden said funds that removed short-term redemption fees did not experience subsequent changes in asset velocity and redemption activity, and that no atypical redemption activity can be attributed to the removal of the charges. In fact, the report said, fund companies continuing to maintain the fees may now be finding they are more of a problem than a help—particularly when competing for new business.
Bowden concluded by calling for an industrywide discussion about whether the fees continue to be necessary.
The report can be purchased at www.sionline.com.