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PIMCO's Freshly Cut Fees

How sweet are they really?

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On May 1, PIMCO cut the administrative fees for 66 share classes of 18 funds between 0.05% and 0.15% each. PIMCO says the firm is in the process of streamlining its operations by taking over distribution of its retail share classes from parent-company Allianz and combining its functions with PIMCO's existing institutional share-class distribution infrastructure. The company says the fee cuts are an outgrowth of cost savings expected from that plan. Morningstar estimates that investors will save roughly $40 million per year overall, based on the magnitude of the cuts and the current level of assets in the affected funds.

PIMCO's fee issues are not trivial. The firm's retail share classes have long charged more than average in many cases, and those prices haven't typically moved much, even when funds have grown extremely large. While fee cuts of any size are good for shareholders, we wanted to take a closer look at just how much of an impact this latest move might have for specific funds. When we looked at their current Morningstar Fee Level Scores (which are used in the fee grade portion of the Morningstar Stewardship Grade) and compared them with their expected postcut scores, we found that of the 66 distinct share classes of funds affected, 19 of them dropped into a lower-fee quintile as a result of their price cuts. Before the cuts, 11 of those 19 were of average price (defined as the middle quintile, or 40th to 60th percentile) or cheaper relative to their respective peer groups. In the wake of the cuts, 16 of those 19 are now of average price or cheaper.

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Kailin Liu does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.