Money market fund managers and distributors waived a record $5.8 billion in expenses last year.
The latest annual report on mutual fund fees and expenses from the Investment Company Institute, Washington, said the managers and distributors bit the bullet to make sure the net yields — the yields after deducting fund expense ratios — didn't fall below zero.
“Waivers raise a fund's net yield by reducing the expense ratio that investors incur,” the report said. However, it added, “these waivers substantially reduced revenues of fund advisers.”
Sean Collins, ICI's senior director of industry and financial analysis, said in an interview that he couldn't forecast the amount of future waivers, noting the dollar volume of waivers has been increasing almost steadily since 2006 when money market mutual fund providers waived $1.3 billion in expenses.
Expense waivers are almost universal among money market funds. “In 2006, before the onset of the financial crisis, 62% of money market fund share classes were waiving at least some expenses,” the ICI report said. “By the end of 2013, that figure had risen to 99%.”
As waivers increased, money market mutual fund expense ratios decreased: The average expense ratio for institutional shares was 16 basis points last year vs. 30 basis points in 2004.