This series is republished with permission from Market Realist. Editor Peter Barnes of Market Realist interviews two Nasdaq Global Information Services leaders: Dave Gedeon, Head of Research and Product Development, Nasdaq Global Information Services and Tom Dorsey, Founder of Dorsey, Wright & Associates, a Nasdaq Company.
PART 16 OF 18
Market Realist: Do you believe that some of the money in hedge funds and other professional managers will flow into products like those that Nasdaq/DWA offers?
Tom: Absolutely, in fact I think there are some ETFs now that offer you, under the ETF wrapper, a hedge fund structure [see Market Realist’s take below]. Ultimately, that money’s going to leave. If anyone sits down with their CPA, and the CPA tells them that the S&P 500 is beating them, and they’re paying 2% to gain exposure to something that can be owned with a much lower expense ratio, some investors may probably consider moving their money into a lower fee structure.
Market Realist’s View: Hedge fund fee structure versus ETF fee structure
While the average US equity mutual fund charges 1.5% in annual expenses, the average equity ETF tends to charge significantly less than this. Most ETFs are index funds, and tracking an index is usually less expensive than active management. ETF trades take place with other investors—not with the fund company itself.
Meanwhile, hedge funds are built to outperform an index, and most charge a management fee and a performance fee (the “2 and 20” fee structure, wherein a hedge fund charges investors a 2% management fee on the account balance and a 20% performance fee on gains, is an example of this). In some cases, mechanisms in fund documents may protect investors from paying performance fees during periods of negative returns, such as high-water marks.
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Dorsey, Wright & Associates, LLC, a Nasdaq Company, is a registered investment advisory firm.Neither the information within this article, nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities or exchange traded products. This article does not purport to be complete description of the securities or commodities, markets or developments to which reference is made.
The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Relative Strength is a measure of price momentum based on historical price activity. Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon.
Past performance, hypothetical or actual, does not guarantee future results. In all securities trading there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives. Advice from a financial professional is strongly advised.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.