Source: State Street Global Advisors
Fees and trading costs for international equity mandates can gradually erode portfolio value over time and create a drag on relative benchmark performance.
Assumes open market trading cost of 28bps and management fees of 14bps. Open market trading cost of 28bps is an estimate that combines the expected explicit costs of commissions, taxes and fees with a mean estimate market impact cost. Management fees of 14bps reflects the highest fee for Commingled Fund products reported by the 10 largest managers in the eVestment ACWI ex-US Passive Equity universe, as of 9/30/18, assuming a $250M allocation.
Selecting a low-cost index fund generates meaningful savings. For strategies with comparably low fees, better tracking may lead to additional inherent cost savings beyond the IM fee.
Difference between the highest (14bps) and lowest (7bps) reported Commingled Fund fees for the 10 largest managers in the eVestment ACWI ex-US Passive Equity universe, as of 9/30/18, assuming a $250M allocation.
Securities lending can potentially enhance returns. The risks, potential returns and cost structure of the program should be transparent and well understood by the plan sponsor.
Average historical lending returns paid to the fund in the State Street MSCI ACWI ex USA IMI Index ERISA DC strategy from 2014-2017.
ERISA-qualified CITs pay a lower tax rate on dividends than mutual funds in many developed countries. This leads to material and consistent performance advantages.
MSCI Index Data, published ERISA and RIC Tax Rates, as of 12/31/2017.
Asset managers with scale and efficient CIT fund structures can generate meaningful cost savings for end investors via internal crossing, translating into better long-term returns.
Estimated cost savings from In-kind/Internal Crossing/Unit Crossing activity in the State Street Global All Cap Equity Ex U.S. Index Fund from January 2012 – October 2018.
In the DC arena, which serves millions of investors and countless transactions, we work at the intersection of efficiency and innovation and endeavour to challenge the status quo by delivering value beyond fees.
Scale becomes a competitive advantage, enabling us to more easily absorb money movement with less impact to fund performance while also supporting greater overall efficiency. Through our ERISA-qualified collective trust investments (CITs), we can deliver a series of benefits that can generate substantial savings to plans and participants:
|Crossing Efficiencies||Tax Gains||Securities Lending|
Access to a large-scale internal trading network, allowing managers to sidestep the open market and trade at reduced transaction costs.
Ability to reduce tax exposure on foreign dividends, translating into increased returns relative to mutual funds.
Entrée to transparent securities lending programs, creating the potential to generate additional income for plans and participants.
To learn more about our index investing approach specific to DC strategies, contact DCInvestmentStrategy@ssga.com.
* As of June 30,2019.