Author Topic: Norwegian Government "crackdown" on actively managed fund  (Read 2321 times)


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Norwegian Government "crackdown" on actively managed fund
« on: March 04, 2015, 01:34:02 PM »
Thought this might be of some interest to the community, even though it is specific to Norway.

From "finanstilsynet" in Norway:

In brief, the actively managed fund "DNB Norge" receives criticism and instruction from the government. They are charging fees as if they are actively managing the fund, while the government finds that over a long time period, the fund so closely tracks the index, that the management company must either: 1. Lower their fees accordingly to index fund levels, or 2. Change to actual active management. Not surprisingly the product is geared towards non-professional investors.

Good to see our government taking action, do you have this problem in USA?


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Re: Norwegian Government "crackdown" on actively managed fund
« Reply #1 on: March 04, 2015, 02:02:36 PM »
Ha, sweet strategy. I wonder if any US-based managed funds do the same thing? I can't recall hearing of any being exposed, but that doesn't mean it's not happening somewhere. I'd say in general in the US, for better or worse, such a fund would be "punished" not by the government, but by people voting with their dollars. And in recent years the tide of dollars really seems to have been turning away from actively-managed funds to low-cost funds from Vanguard and others.

But it's not clear from the article: is the fund closely matching the index *before* the fees are included, or *after* the fees are included? It must not be after-fees, because that would mean its investments are actually outperforming the index, not following it. But if it's before-fees, then it seems like the sub-par returns vs. the index would be obvious, and that's why it seems like the voting-with-dollars (er, kroner) would solve the problem on its own. Maybe the government simply pointing out the underperformance would be a compromise between over- and under-regulation.

Even if you're all for government involvement in the management of mutual funds, forcing the fund to do active-management sounds like a terrible idea, because it would imply government approval of the idea that active-management actually *works*, and is worth the fees, when all research has shown that it's not. "If you're charging active-management fees, you better be giving better than passive-management returns!!"...except that's not actually how it works. Making that change wouldn't actually help investors, it would just force the fund manager to be less lazy.

Also, dang, Google's translations have gotten really damn good.
« Last Edit: March 04, 2015, 02:09:42 PM by skyrefuge »


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Re: Norwegian Government "crackdown" on actively managed fund
« Reply #2 on: March 04, 2015, 02:21:39 PM »
It's not clear from the article, but I cannot see any other way than that they are closely matching the index *before* fees are subtracted. The fees are currently at 1.8% btw :)

I agree, forcing them to do active management doesn't sound like a particularly good idea. This is probably symptomatic for the Norwegian market that there is not a lot of low cost index funds to choose from. While there are several opinions on how much the government should interfere, they are at least upholding the current regulations. The idea that using low cost index funds is smart is not new here, but not that widespread AFAICT.

The same company sells a fund named "DNB Norge Indeks", I guess you can guess what that does.

I'm going out on a limb here, but I saw one documentary that stated that index funds have quite a long way to go in Europe, even in the English market, where actively managed funds still cover most of the market. Please correct me here as needed as this is the only source I have this information from.


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Re: Norwegian Government "crackdown" on actively managed fund
« Reply #3 on: March 05, 2015, 02:46:31 AM »
Sounds to me like the Financial Supervisory Authority of Norway is being unfair to DNB. It is true that the Norge active fund's performance has tracks quite closely to the Index although not as closely as the Norge Index fund. From information about the two funds on the DNB website it is clear that although the performance of the funds is similar -- the active fund is clearly not a clone of the index one.

I looked at the holdings of DNB Norge here: and DNB Norge Index here: The holdings are different. I noticed for instance the index fund is 15.16% invested in Statoil. The active fund has 3.84% invested in Statoil. Clearly they aren't the same.

I can't read The Financial Supervisory Authority of Norway's report to see how they worded the contention that they are the same. I would think the Authority would know they aren't the same. I wonder if the Authority's point is more that if a customer is looking for performance that tracks the index they should be sold the Norge Index and not Norge -- more of a marketing concern than one about the actual funds.

Here in North America it wouldn't surprise me if there are active funds or ETFs that try to match a particular index. I don't know of any but it wouldn't surprise me. I can imagine they might have a goal like "matching the performance of the S&P 500 but without any financial sector holdings". Of course most people who want the performance of the index would just buy the index fund for similar performance at a lesser fee.