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US mutual fund companies transfer dollars into collective investment trusts

BBR Staff Writer Published 05 March 2015

Mutual fund companies in the US including No. 2 Fidelity Investments have transferred dollars into collective investment trusts (CITs) and cut down fees on their popular funds in a bid to trim expenses.

Mutual funds.

Morningstar research manager Michael Rawson told Reuters: "CITs are more opaque to the outside world because reporting requirements are not as stringent."

The increase in movement to CITs is expected to help actively manage mutual funds which are losing out to passive investment products such as the exchange-traded funds that are of low cost.

In 2013, Delta Air Lines shifted about $1bn Fidelity's Contrafund-managed assets into a CIT and the retirement plans sponsored by it slashed fees by 23%.

In a letter to employees Delta said: "The lower the expense of a fund, the less money taken out of overall earnings, which can translate into better returns for investors."

Depending on where the trust is chartered, the regulator for one CIT can vary from another, the news agency said.

Compared to the average mutual fund, assets in CITs can have lower overhead costs and are said to be surging.

CITs can only be offered to qualified retirement plans such as 401(k)s and the assets are expected to top $2tn in 2015.

According to banking disclosures, at 2014-end, BlackRock and State Street's trust banks announced $2.22tn together in assets that are CIT-related.

The latest disclosure by Fidelity as at March 2014-end reported $43.3bn in CIT assets, which represents $8bn rise from the end of 2013.


Image: Fidelity Investments transferred dollars into CITs. Photo: courtesy of Stuart Miles/ FreeDigitalPhotos.net