What is a ‘Commingled Fund’
A commingled fund is a fund consisting of assets from several accounts that are blended together. Investors in commingled fund investments benefit from economies of scale, which allow for lower trading costs per dollar of investment, diversification and professional money management. These types of funds are sometimes referred to as a “pooled funds.”
BREAKING DOWN ‘Commingled Fund’
Commingled funds exist to reduce the costs of managing the constituent accounts separately. Unlike mutual funds, commingled funds are not available to retail investors. However, there are ways in which commingled funds are similar to mutual funds.
Commingled Funds Versus Mutual Funds
There are two major similarities between commingled funds and mutual funds. The first is that they are both professionally managed by one or more fund managers. The second similarity is that both types of funds invest in basic financial instruments such as stocks, bonds or a combination of both.
One major and important difference between the two types of funds is that commingled funds are not regulated by the Securities and Exchange Commission (SEC). This means that commingled funds are not required to submit a variety of lengthy disclosures. Commingled funds are not completely devoid of oversight. The United States Office of the Comptroller of the Currency, as well as individual state regulators oversee commingled funds. Mutual funds, on the other hand, must register with the SEC and abide by the Investment Company Act of 1940, thus giving them burdensome disclosure requirements.
An advantage of commingled funds, given the low regulation, is lower legal expenses and operating costs. This lowered cost has the benefit of not dragging down performance. If a commingled fund and a mutual fund has the exact same gross performance, the commingled fund’s net performance would likely be better because there is a high probability its operating costs are lower than a comparable mutual fund. A disadvantage of commingled funds is that they do not have ticker symbols and are not publicly traded, so it can be difficult for outside investors to track the fund’s capital gains and dividend and interest income. This information is much more transparent in mutual funds.
While mutual funds have a prospectus, commingled funds, which are generally used for retirement plans, have something called a Summary Plan Description (SPD) that offers more detail of the funds. The SPD document states the rights and obligations that the plan participants and beneficiaries can expect. It is recommended that any participant in a commingled fund read this documentation carefully.
Example of a Commingled Fund
The Fidelity Contrafund Commingled Fund has $22 billion in assets as of May 2018 and focuses on large cap growth stocks. Like a mutual fund, it has a portfolio manager and publicly discloses pertinent information. The fund has a 0.43% expense ratio, lower than the average expense ratio of mutual funds, which was 0.63% at the end of 2016. Since its inception in 2014, $10,000 invested in the fund would be worth $16,691 as of May 2018, versus $15,732 for the same investment in the S&P 500 index. The fund is a collective investment trust and is not insured by the FDIC.