Series D & N Mutual Funds: The New Share Classes Of The Future

Ted

FYI: Mutual funds are a great way for the typical person to invest because they offer diversification and professional money management in a single investment.

However, there are more than 6,000 mutual funds available to the public, which makes the task of choosing a fund a sometimes daunting task. Mutual funds also have several share classes, which determines the fee structure of the fund. Let us go over a newly introduced share class in the mutual fund space.
Regards,
Ted
http://mutualfunds.com/education/series-d-mutual-funds-new-share-class/

rforno

Why not just drop the 'institutional' name from that class and make it the N class?

No, we need to create a NEW class so institutions can continue to feel special by using a fund with 'institutional' in its name......

msf

This looks like someone trying to reverse engineer what literally two fund families have done into some industry "trend".

This new class is called the D or N share ... There are still a few D shares available but many are closed to new investors

So which is it, are D shares a new share class or a dying share class?

What he's observing is that many years (decades?) ago, Janus closed its funds to direct sales, requiring you to go through brokerages. (That's the opposite of what he wrote: " Many fund families, like Janus Henderson, for example, will offer access to their no-load funds if done directly.") Janus allows only shareholders who already invested directly with them to continue to do so, buying their direct-only D shares.

The article might have been triggered by PIMCO's shuttering of D shares. Those two families are the only ones that come immediately to my mind that offered D shares. One other point about PIMCO - its D shares were not cheaper than its A shares. That's contrary to his statement: " the fund [D/N share] has a lower expense ratio than its A and C share equivalents."

It is true that over the past several years, we've seen many funds offering N shares. Doubleline (DSEEX, DSENX), William Blair (BGFIX ,WBGSX), etc. But these are usually just retail versions of the institutional shares, with extra 12b-1 fees. Not noload versions of load funds.

When Harbor split its funds into two share classes, it raised the min for its existing shares and added "Investor" shares with the old min and an extra 12b-1 fee, e.g. HIINX, HAINX. N shares are not like I (or institutional) shares. They're just vanilla retail shares. The only thing special you might infer from the 'N' designation is that they're more likely to have 12b-1 fees than "Investor" class shares. But that varies from family to family.

bee

Making Sense of Share-Class Alphabet Soup (2010 article, so the soup may have changed):
news.morningstar.com/articlenet/article.aspx?id=346727

msf

The article is no less accurate than it was in 2010 (except for minor details like TD Waterhouse).

It describes the standardized A, B, C, I (institutional) class shares well. Going into any other share classes is like diving into quicksand.

Z shares - it's probably correct that these tend to be legacy (and closed) no load shares. I own representatives of the only two families I'm aware of: Columbia (formerly Acorn Funds), and Franklin Templeton (formerly Michael Price's Mutual Series Funds). That's not to say there aren't other examples; if there are, they're likely quite obscure.

S shares - here we sink even faster into the muck. The only family I'm aware of that created legacy S shares (analogous to Z shares) was Scudder. The original no load family (dating back to 1928), it was acquired by Zurich in 1997, then rebranded Scudder Kemper, with loads added. Then in 2001, Deutsche Bank bought Scudder from Zurich.

Throughout all of this, Scudder had a line of funds branded AARP, which first got a name change in 2000 from AARP fund xxx to Scudder fund xxx, class AARP. Still noload and open, as I recall. Sometime subsequent to Deutsche's acquisition, these were renamed DWS fund xxx. "On July 14, 2006, Class AARP shares were converted into Class S shares." That's from one of the funds' 2009 prospectuses. From vague memory, the non-AARP branded investor (noload, retail) share class had previously been renamed Class S.

So at least that example of S class shares is similar to Z shares, as stated in the article. But wait, it gets worse. The only other example of S shares I'm aware of is Selected Shares. The S share class there aren't legacy shares.

In May 2004, Selected Shares decided to give larger investors a break - similar to what Vanguard did with Admiral Shares. Selected Shares named its original shares class S (with its 12b-1 fee) and created a class D (no 12b-1 fee, $10K min). So here, the S shares are the more expensive ones, and they're still open - that was the whole idea.

Schwab and Fidelity balked at this, and initially kicked Selected Shares out of their supermarkets. Schwab's policy for any fund is either not to offer it NTF, or to offer the cheapest retail share class NTF. Apparently they reached an accommodation, where Schwab would offer the S shares NTF, but would require $100K to buy D shares. In that way, Schwab could present the fiction that D shares weren't really retail, so it was selling the cheapest (i.e. class S) Selected Shares NTF. See, e.g. SLASX and SLADX.
https://www.kiplinger.com/article/investing/T041-C009-S001-a-secret-about-buying-funds-through-an-online-brok.html

D shares - notice that the only example given is PIMCO. There is also the Selected Shares D class, but that just complicates matters. There may be other D shares, (I'd mentioned Janus above), but like Z shares they're likely quite obscure.