Products June 29, 2017

Investment Products and Service Launches

Goldman Sachs Launches New ActiveBeta ETF; WisdomTree Sprouts New Smart Beta ETF; Manning & Napier Rolls out Disciplined Value CIT; and more.
Reported by

Goldman Sachs Launches New ActiveBeta ETF

Goldman Sachs Asset Management today announced the launch of GSSC, the sixth product in its ActiveBeta suite of exchange traded funds (ETFs). The fund seeks to provide low-cost access to small capitalization U.S. equities by tracking GSAM’s proprietary Goldman Sachs ActiveBeta U.S. Small Cap Equity Index.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

GSSC will be passively managed by GSAM’s Quantitative Investment Strategies team. 

“Over the last two years, we have focused on building a suite of innovative, low-cost ETFs that allow investors to access key markets while harnessing the time-tested benefits of a factor-diversified approach,” says Michael Crinieri, GSAM’s global head of ETF strategy. “After applying our ActiveBeta approach to large cap equities in the U.S. as well as in emerging markets, developed international equities, Europe and Japan, we are thrilled to now apply it to a market as dynamic and diverse as U.S. small cap equities.”

The index seeks to emphasize and underweight certain securities according to performance factors including value, momentum, quality and low volatility. It aims to remain broadly in-line with traditional market-cap weighted U.S. small cap indices.

“GSSC is a result of continued investor demand for products that offer a multi-factor investment approach, providing exposure to small cap equities by leveraging our quantitative investment expertise,” says Gary Chropuvka, head of customized beta strategies within the Quantitative Investment Strategies team.

NEXT: WisdomTree Sprouts New Smart Beta ETF

WisdomTree Sprouts New Smart Beta ETF

WisdomTree has launched a new smart beta exchange-traded fund (ETF), the WisdomTree U.S. Multifactor Fund (USMF), on the BATS Exchange. USMF seeks to track the price and yield performance of the WisdomTree U.S. Multifactor Index and has a net expense ratio of 0.28%.

The ETF employs what WisdomTree calls an alpha-driven smart beta strategy, meaning the fund will directly target multiple smart beta factors. The WisdomTree U.S. Multifactor Index was designed to beat the market through a selection and weighting methodology allowing for exposure to value, quality, momentum, size and low correlation, while managing volatility and maintaining sector neutrality.

Luciano Siracusano, chief investment strategist at WisdomTree explains, “WisdomTree’s existing suite of dividend- and earnings-weighted ETFs have typically tapped into the smart beta factors of value, quality and size and, in many instances, have outperformed their market capitalization-weighted benchmarks, while exhibiting relatively low tracking error against those benchmarks. But, for investors willing to assume higher tracking error relative to traditional market capitalization-weighted benchmarks, a multifactor approach, such as the WisdomTree U.S. Multifactor Fund, has the potential to enhance returns, while providing greater factor diversification and thus, may lower volatility compared to single-factor approaches.”

For more information about the USMF, visit WisdomTree.com.

NEXT: Manning & Napier Rolls out Disciplined Value CIT

Manning & Napier Rolls out Disciplined Value CIT

Manning & Napier have launched the Disciplined Value Collective Investment Trust Fund (CIT). It will be offered as a U-class, zero-revenue share product with a trustee fee of 0.25%.

First established in 2003, Manning & Napier's Disciplined Value strategies are a suite of value-oriented, systematic equity portfolios. These strategies aim to provide competitive returns consistent with the broad equity market while also providing a level of capital protection during market downturns. Securities are selected from a universe of mid-to-large capitalization companies based on factors such as free cash flow yield, dividend yield, dividend sustainability, and financial health.

"According to a recent Manning & Napier survey, 83% of employers are concerned about the current increase in litigation pertaining to investment selection and fee reasonableness," observes Shelby George, defined contribution practice leader at Manning & Napier. "CITs are an increasingly important part of the fiduciary due diligence process. While it has always been important for fiduciaries to consider CITs because of the many benefits they provide to participants, today's 401(k) fee litigation is making it essential for fiduciaries to give CITs a hard look."

"We continue to develop solutions to meet participant needs," George adds. "Today's slow growth outlook and volatility coupled with low interest rates create a challenging environment, particularly for participants nearing retirement. The Disciplined Value CIT is designed to help these participants generate strong absolute returns with lower volatility while providing consistent downside risk management."

The Disciplined Value strategy is available as a separately managed account with a minimum investment of $250,000, and as a mutual fund.

NEXT: T. Rowe Price Rolls Out Retirement Income 2020 Fund

T. Rowe Price Rolls Out Retirement Income 2020 Fund

T. Rowe Price has launched the Retirement Income 2020 Fund, designed for investors nearing retirement and focused on generating income from their accumulated retirement savings through a managed-payout structure paying out monthly dividends based on an annual distribution rate. The fund serves as a complement to T. Rowe Price’s existing lineup of target-date funds.

The fund will invest in other T. Rowe Price funds representing various asset classes and sectors. Its allocation between T. Rowe Price stock and bond funds will change in time in relation to its 2020 target retirement date. Monthly dividend payments will be made mid-month to all shareholders of the fund, regardless of age or retirement status.

The fund’s annual payout will be calculated September 30 of each year as 5% of the average monthly net asset value over the trailing five years. The calculation is intended to reduce the effects of market volatility on the income payments.

The fund will have an identical investment profile to the existing T. Rowe Price Retirement 2020 Fund. This includes the same asset allocation, glide path, and underlying funds. It is not intended at this time to be used in defined contribution retirement plan accounts, the firm notes.  

The fund’s net expense ratio is 0.74% and will initially be offered only with an investor class. Operating expenses will be capped at 0.25% at least through April 30, 2020.

NEXT: SEI Trust Releases U.S. CIT with Canadian Firm

SEI Trust Releases U.S. CIT with Canadian Firm

SEI Trust Company has partnered with Montreal-based investment management firm Addenda Capital to launch a collective investment trust (CIT) fund in the United States. SEC-registered Addenda will serve as adviser to the fund.

The company conducts research integrating ESG (environmental, social and governance) factors into its investment processes with an aim for long-term returns and low turnover.

“Building on our success in Canada, we want to intensify our business development activities in the United States,” says Roger Beauchemin, president and CEO of Addenda Capital. “Our international equity strategy has performed well above industry average and we are confident that we can deliver superior results to investors thanks to our 20-plus years of experience, our innovative approach and the CIT’s low-cost structure. We now have dedicated resources to build relationships with institutional investors and consultants across the U.S.”

Compliance June 29, 2017

Micro Plan Sues Nationwide Over Asset-Based Fees

According to plaintiffs, the plan’s small size and lack of expertise allowed Nationwide to assess an unreasonable asset-based fee for recordkeeping and administration. 
Reported by

The latest Employee Retirement Income Security Act (ERISA) lawsuit, filed in the U.S. District Court for the Southern District of Ohio’s Eastern Division at Columbus, names Nationwide Life Insurance Co., Nationwide Bank and Nationwide Trust Co. as defendants.

Plaintiffs are participants and beneficiaries of the Andrus Wagstaff PC 401(k) Profit Sharing Plan—the retirement plan of a law firm focused on mass tort personal injury claims, headquartered in Denver. They are seeking the return of “excessive and unreasonable asset-based fees” charged by Nationwide for recordkeeping and administrative services, “and to prevent Nationwide from charging those excessive fees in the future.”

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Background information included in case documents show the plan is quite small compared with many of Nationwide’s clients: At the end of 2015, the AW Plan had 27 participants and $1,100,000 in plan assets.

As the text of the complaint lays out, the AW Plan contracted with Nationwide under the company’s Retirement Flexible Advantage Retirement Plans Program to provide recordkeeper and other services for a fee of “one percent per year of the AW Plan assets.” Nationwide describes the fee in the annual AW Plan participant fee disclosure required by 404(a)5 as follows: “AMC/Net Asset Fee – This is a fee charged by Nationwide to recover expenses that may include compensation paid to financial advisers, administrative service fee payments to Administrative Firm/Authorized Representative, and any expense credits issued to the plan. Additionally, this fee pays for services provided by Nationwide including access to a variety of investment options, the recordkeeping platform, customer service, etc.”

As a result of this arrangement, plaintiffs suggest, in 2014 the AW Plan paid approximately $9,400 for recordkeeping services for a plan that had 15 participants at the end of the year, amounting to $625 per participant. In 2015, recordkeeping fees increased to $11,000 for 22 participants amounting to $500 per participant.

“Nationwide’s fees are almost 10-times more than the reasonable amount of compensation that should have been charged to the AW Plan,” plaintiffs argue.

Interestingly, the suit calls out the employer for potentially breaching ERISA by willingly entering into this arrangement, but it does not actually name the law firm as a defendant, instead zeroing in on the various Nationwide brands that touch the plan. Here is how the decision is explained: “Although the AW Plan fiduciaries may have breached their fiduciary duties to the AW Plan by entering into the Nationwide contract, the U.S. Supreme Court made it clear in Harris Trust and Savings Bank v. Salomon Smith Barney (2000), that 29 U.S.C. 1132(a)(3) authorizes a civil action against a non-fiduciary who participates in a transaction prohibited by 29 U.S.C. 1106(a).” It will be an interesting facet of this case, whether the employees’ apparent reluctance to sue their own employer will impact their ability to first prove standing and then to prove Nationwide’s culpability under ERISA.  

The text of the complaint takes a deep dive into the services generally provided by recordkeepers and administrators of ERISA plans—pushing the conclusion that asset-based fees are less rational or fair than per-participant fees.

“Recordkeeping services for a qualified retirement plan, like the AW Plan, are essentially fixed and largely automated,” plaintiffs argue. “The cost of recordkeeping and administrative services depends on the number of participants, not the amount of assets in the participant’s account. Thus, the cost of providing recordkeeping services to a participant with an average account balance of $100,000 is the same as the cost of recordkeeping for a participant with $1,000 in her retirement account. For this reason, responsible recordkeepers charge recordkeeping fees for each plan participant rather than as a percentage of plan assets. Otherwise, as plan assets increase through participant contributions or investment gains, the recordkeeping revenue increases without any change in the services provided.”

The complaint goes on to argue that, although the Nationwide Retirement Flexible Advantage Program website emphasizes efficiency and cost savings, “in fact, the Nationwide Retirement Flexible Advantage Program takes advantage of the lack of sophistication and bargaining power of the AW Plan and other similarly situated plans.” Plaintiffs suggest their investment options are presented with “unscrupulously” added markups, ranging from 75 to 100 basis points. 

In a statement to PLANADVISER, Nationwide says it is “aware of the recent fee allegation that has been made against us, and we are assessing the complaint. We are confident in the value of the services that we offer, and we will respond to the allegation accordingly.”

Read the full complaint here. 

«