Gasp! Fund manager commits selfless act

A big, respected mutual fund management company voluntarily cuts fees. Who'da thunk it?

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Allan Sloan, senior editor at large

Chris Davis, head of Davis Advisors
How strong is any economic recovery in your area?
  • Very strong
  • Small signs of a rebound
  • No recovery here

(Fortune magazine) -- It's fun writing about Wall Street's greedheads and tax dodgers. But every once in a while, I get to write about something positive -- and unpublicized -- that some Wall Street types have done. Today's reversal of the Street's natural order involves Davis Advisors.

The firm, which runs the Davis New York Venture (NYVTX), Selected American Shares (SLASX), and Clipper (CFIMX) mutual funds, has voluntarily reduced management fees on those funds and six others. Not because of a problem, not because of competition, but because it wanted to do the right thing for investors.

I stumbled on the cuts, which took effect July 1, one night when I was reading a shareholder report from a Davis-run fund my family owns. I'd hoped that reading the report would help me fall asleep, but instead I came awake when I found the fee cut, buried in a footnote. (I got the full fee-cut list when I asked Davis for it.)

Fund firms make their money from fees, which are calculated as a percentage of a fund's assets. To give you the short version, Davis reduced its fees -- which had started at 0.65% in Clipper and Selected American and 0.75% at Davis New York, and then scaled down -- to a top of 0.55%. That saves New York Venture, Selected American, and Clipper funds $750,000 a year each.

That isn't a staggering amount of money to investors in those three funds: 1/400 of 1% annually for New York Venture, 1/100 for Selected American, 7/100 for Clipper. But it's reasonably serious money for the Davises, who are voluntarily walking away from about $3.3 million a year in fee income.

Russ Kinnel, Morningstar's director of mutual fund research, says that giant firms like Fidelity, Schwab, and Putnam sometimes cut fees for competitive purposes. But it's very unusual, he says, for an already low-cost outfit like Davis to cut fees on the funds that are the core of its business.

So what's going on? Chris Davis, the third-generation head of the family-owned management firm, says it cut fees because it was the right thing to do. "If we were starting those funds today, we would start out charging 55 [hundredths of 1%]," he says. "There's no reason that investors in those funds should be prisoners of history."

The Davis funds have "breakpoints." That means that as funds grow bigger, each new dollar of assets pays a less-than-fund-average fee, while increasing Davis's total income. It's a virtuous cycle -- the more dollars Davis makes, the less investors pay as a percentage of their investment.

But when the funds got clobbered in the 2008 to early 2009 bear market, funds' assets fell below their breakpoints, so average fees rose at the same time that the value of investors' shares were being eviscerated. That bothered the Davises, who have more than $1 billion of their own money in their funds, and thus shared investors' pain. (And no, they're not cutting fees to save their own money -- they own only 4% or so of the affected funds.)

In addition, Chris Davis says, the managers felt they should give up some fees because fund investors were taking enormous hits, some of which he attributes to his faulty investment decisions.

This is the second time I've seen Davis lower fees. The first was in 2004, when it eliminated the 0.25% 12(b)(1) marketing fee for Selected fund investors who held $10,000 or more in the funds directly rather than through fund "supermarkets," like Schwab and Fidelity, that charge managers for shelf space.

That cut was prompted by Selected's feisty board of directors, which a decade earlier had hired Davis to replace the previous managers. But the recent cut was purely voluntary, says Jim McMonagle, Selected's chairman. "Chris just told us Davis was cutting fees," he says. "We didn't ask him to do that."

So there it is: Wall Street acting good. Next on the agenda: looking west to see the sun rise.

Reporter associate: Kim Thai To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.