fees

Data Presentation

Can We Make Data More Digestible?

Posted by Mike McLaughlin on Feb 20, 2017, in Thoughts , tagged with , , ,

25 home runs. 100 runs batted in. A .293 batting average.

Those data points, in part, summarize the 2016 baseball season of Jose Abreu, the best offensive player on my favorite team, the Chicago White Sox. Baseball has undergone a huge statistical revolution over the last 20 years. I chose three very traditional data points for Abreu, but the fact is there are literally hundreds of individual stats tracked for players these days.

All of that data is well and good, but digesting it can lead to a very simple question: just how good was Jose Abreu in 2016? It turns out there’s a clear answer to that question, because one thing baseball has done very well is simplify complex data.

For example, there’s a statistic called Weighted Runs Created Plus, or wRC+. It summarizes a player’s entire offensive value in a single number. Without diving into the technical details, two things make wRC+ very effective:

  1. It adjusts for context. Specifically it adjusts results based on (a) league-wide averages, and (b) the stadium the player plays in (since some are more or less friendly for offense than others).
  2. It summarizes everything in a SINGLE number. A wRC+ value of 100 represents league average. Every point above or below that represents a result that is 1% better or worse than average. So, Abreu’s wRC+ of 118 means he was 18% better than the average offensive player last season.

That’s a lot of baseball… what’s the point? Simply put, I think baseball’s ability to present data in a digestible manner has potential for asset management. Consider expenses as an example. A common presentation is to present expense ratios directly, as Dimensional Fund Advisors does here:

DFA Expense Ratio

But how much does that really help? Sure knowledgeable investors and advisors have a good notion of what is high or low when it comes to fees, but not in any systematic or (frequently) very precise way.

Providing category or peer data alongside that, as Morningstar and some managers do, certainly helps. But even there an investor or advisor is left to mentally digest the scale of the difference.

So what if data like expense ratios was represented via a more comprehensive statistic that combines product-specific and category-average data into a single number scaled against 100, much like wRC+? Let’s call it the “Expense Index.” For the DFA fund noted above, the Expense Index would be 38, immediately communicating that the fund’s expense ratio is 62% lower than its peer group.

I can envision many applications for this type of normalized data. Of course there are questions. For example, without an external / regulatory requirement would firms want to be so direct, especially with data like fees? I mean, many would want to avoid showing an Expense Index of 150.

So there is some thinking to be done on what information is most conducive to such an approach. Even so, simplifying and providing context around data strikes me as an opportunity worth of more exploration.

J. P. Morgan Funds and Stealth Price Marketing

Posted by Mike McLaughlin on Oct 25, 2010, in Thoughts , tagged with , ,

We said three posts but couldn’t resist a quick fourth on price competition.  Click to read Part 1, Part 2, and Part 3.

To close off the series of posts on price competition, an interesting tidbit.  Check out the sponsored links in the Google results for “low cost mutual funds”.*

At the top you’ll see Vanguard, T. Rowe Price, and Fidelity.  No surprises there.   Now look on the right side.  The name that jumps out to me:  J.P. Morgan Funds.  The firm has many competitively-priced offerings, but never before have I seen them overtly market themselves as a low-cost provider.  The sponsored link caught me off-guard.

Looking further, the firm makes no mention of pricing or fees anywhere in the content about the firm on its Web site.  This makes me suspect that J. P. Morgan is doing some “test and learn” when it comes to sponsored links.

However, there’s the possibility that this represents a little stealth, price-centric marketing by J.P. Morgan.  If so, it’s another interesting way to inject price into marketing strategies.

* I repeated the same search 20 times on 10/25/10 and J. P. Morgan Funds appeared in the sponsored links 19 times.  The sponsored results will change over time.



Marketing on Price the American Funds Way

Posted by Mike McLaughlin on Oct 25, 2010, in Thoughts , tagged with , ,

Part 3 in a series of three posts regarding price competition.  Read Part 1 here and Part 2 here.

Last week I argued that there’s an ocean of opportunity for asset managers to integrate price into their marketing efforts.  For a straightforward example of how this can be done effectively, look no further than American Funds, which does three things very nicely:

A simple graph on fees with a strong competitive message.

But we’re not American Funds.  That’s the easy objection.  And true.  But the principles of the approach can be adopted in specific ways that suit each firm.  For most every firm, one of the following is going to be true:

  • Fees or other costs have been reduced, in some cases dramatically, over the past few years.
  • Specific products are relatively inexpensive compared to peers.
  • Specific products have significantly outperformed competitively-priced peers.

Some are always going to be more capable in keeping prices low on a broad scale.  But all firms care about operating efficiently and should have evidence in hand to demonstrate that.  In other words, every firm can make price a part of their value proposition.  It’s up to marketers to identify the best way to do so.

Ignoring Price Means Firms Have to Play Defense

Posted by Mike McLaughlin on Oct 22, 2010, in Thoughts , tagged with , , , , , , , ,

Part 2 in a series of posts regarding price competition.  Read Part 1 here.

In yesterday’s post, I suggested that price is an underutilized tool in mutual fund marketing. That the industry, while very price competitive, rarely makes that competition publicly explicit.  In light of the traditional 4P marketing mix, which Anu used to discuss PIMCO, this is like leaving 25% of the tools in the toolbox.

Of course, at one end of the spectrum you have a firm like Vanguard, where:

  • “Exceptional value”, which includes performance, service, and costs, is highlighted as a core reason to invest with the firm.

  • The words “low cost” appear consistently in marketing messages, including on the homepage of the advisor Web site.

Most every other mutual fund provider sits at the opposite end of the price-marketing spectrum.  In defining who they are, firms like Columbia, Invesco, DWS, Oppenheimer, and myriad others make no mention of fees/pricing/efficiency as part of their overall value proposition.

The danger in passive strategies toward price discussions is that they can eventually force firms to play defense.  Consider the responses of BlackRock and State Street to the recent fee reductions on Vanguard’s ETFs.  The answers are fine, but the discussion has those firms having to defend existing policies.  Without exceptional performance, “why do you charge X when another firm charges Y?” is a question nobody wants.

Introducing price more proactively is a chance for some firms to gain higher ground in marketing against the competition.  And there are subtle ways to do this.  Some tactical ideas to come next week…

The Strange Issue of Price Competition in Asset Management

Posted by Mike McLaughlin on Oct 21, 2010, in Thoughts , tagged with , , , ,

Part 1 in a series of posts regarding price competition.

Two articles from last week caught my attention.  Both centered on product pricing.  One suggested a looming price war among ETF providers, which BlackRock downplayed (FT.com, free registration required) just this morning; another reviewed the implications of Vanguard’s lower investment minimums (WSJ, registration required) for its Admiral shares.

Over the years it seems that 99.9% of all articles on fees in the asset management industry revolve around Vanguard.  But maybe my memory is selective; my experience tells me that price competition is very real across the board.

To illustrate, I spent a few minutes reviewing the mutual fund products offered to me by Merrill Lynch.  A review of available equity funds shows:

  • 1,454 have annual expense ratios lower than 1%
  • 253 have annual expense ratios below 0.25%

The 253 funds with the lowest expense ratios are offered by 31 different providers, 24 of whom have more than one fund among the group.  This is not comprehensive scientific research, but confirms what we all know.  Price is an important competitive ingredient in the industry.

So what is the “strange issue” teased in the title of this post?  It’s the fact that price, a critical competitive variable, is almost completely absent from firm and product marketing. Fees are disclosed, but there’s very little overt discussion and proactive use of pricing in marketing strategies.

Isn’t this a big missed opportunity for fund marketers?  More to come…