Two-way Squeeze on Mutual Funds


Mutual fund managers, particularly those offering actively managed funds, have come under significant economic strain in recent years due to increasing fee pressure and declining net flows. Firms offering products with subpar performance rankings in core asset classes have been especially hard hit.

Unfortunately, it appears that more clouds are on the horizon. UBS just announced that it will remove some 840 funds from its platform, a roughly 20% decline in total product. This follows a similar move late last year by Morgan Stanley that culled 600 funds, or 25%, of their fund stable. This trend among the wirehouses to limit fund shelf space began in earnest in 2016, when Merrill Lynch cut back on its fund platform options by nearly 37%. These companies have focused on eliminating funds that have underperformed or failed to attract significant assets.

Of course, fewer funds means lower research and tracking costs for the wirehouses. For fund manufacturers, on the other hand, it means increased pressure for improved performance rankings and more costly access to distribution, putting the squeeze especially on fund groups with more limited resources and/or poorer selling products.

It’s not unlikely that as distribution channels dry up, mutual fund manufacturers will in turn be forced to “rationalize” their product lines, and slow new fund development in the active space.