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Photo: Towfiqu Photography/Getty Images

Investment firm Salt Financial plans to offer a fund that will temporarily pay investors to hold it, according to regulatory filings unearthed this week by Bloomberg, and analysts at Moody's Investor Service believe there's more of this to come.

Why it matters: While Stephen Tu, a Moody's vice president, wouldn't predict just how far the trend of negative-fee ETFs could go, he did say he thinks more asset managers will be offering to pay investors to hold their funds.

"It changes the psychology of the marketplace," Tu tells Axios.

Details: The negative-fee ETFs are the latest in the war by asset managers to attract money that is moving quickly out of active funds. In 2018, mutual funds saw the highest yearly outflows on record.

  • "The consumer trend toward passive investment products is akin to the adoption of an improved technology," Tu wrote in a recent Moody's white paper.

What's next? Moody's is anticipating so much more money will move into passive investing vehicles, in large part because of low fees, that by 2021 they expect passive funds to hold more assets than actively managed funds.

  • As of December 2017, researchers at the Fed found that passive funds accounted for 37% of combined U.S. mutual fund and ETF assets under management, up from 3% in 1995.
  • Investors are moving to passive strategies not just because they're cheap, but because management fees and commissions are a form of "leakage in earnings," Tu argues.

How a negative-fee ETF works: During the first year, ETF holders will earn 50 cents for every $1,000 invested in Salt's ETF, capped at $100 million, at which point it will be shared with all investors. A $2.90 management fee may be applied after April 2020.

Between the lines: Tu tells Axios that the fund's fee waiver of $34 on $10,000 of invested capital (offsetting $29 in fees to net $5 paid to the investor) likely can be offset by these companies through securities lending, i.e., loaning out stock to short sellers.

Go deeper: Invesco's chief executive says a third of the asset management industry could disappear over the next 5 years.

Go deeper

Updated 26 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Eniola Odetunde/Axios

Dave Lawler, author of World
40 mins ago - World

Biden holds first phone call with Putin, raises Navalny arrest

Putin takes a call in 2017. Photo: Handout/Anadolu Agency/Getty

President Biden on Tuesday held his first call since taking office with Vladimir Putin, pressing the Russian president on the arrest of opposition leader Alexey Navalny and the Russia-linked hack on U.S. government agencies, AP reports.

The state of play: Biden also planned to raise arms control, bounties allegedly placed on U.S. troops in Afghanistan and the war in Ukraine, according to White House press secretary Jen Psaki, who said the call took place while she was delivering a press briefing. Psaki added that a full readout will be provided later Tuesday.

Biden signs racial equity executive orders

Joe Biden prays at Grace Lutheran Church in Kenosha, Wisconsin, on September 3, 2020, in the aftermath of the police shooting of Jacob Blake. PHOTO: Jim Watson/AFP via Getty Images

President Joe Biden on Tuesday signed executive orders on housing and ending the Justice Department's use of private prisons as part of what the White House is calling his “racial equity agenda.”

The big picture: Biden needs the support of Congress to push through police reform or new voting rights legislation. The executive orders serve as his down payment to immediately address systemic racism while he focuses on the pandemic.