When it comes to investing in mutual funds, ETFs or working with a financial advisor, you may come across the term assets under management (AUM). AUM is a key metric used to measure the amount of money managed by a firm or entity, such as a fund.
Here’s what you need to know about AUM, including how it’s calculated and its implications for your investment fees.
Understanding Assets Under Management
Assets under management represent the total market value of investments managed by a specific firm or fund. For instance, a wealth management firm with $2 billion in AUM manages $2 billion on behalf of its clients.
Individual mutual funds or ETFs also reference AUM, reflecting the amount of money managed within that particular fund. A fund’s AUM can fluctuate due to new investments, withdrawals, and changes in the value of underlying assets.
AUM and Fee Structure
Many financial advisors, wealth management firms, and investment funds charge a management fee based on AUM. For example, a firm managing $2 billion and charging a 1% annual fee would generate $20 million in revenue.
Firms often highlight high AUM levels to attract investors, showcasing trust and credibility. However, the impact of AUM on investment performance can vary.
While larger AUM may lead to lower expense ratios in index funds, it can limit the investment universe for actively managed funds. Warren Buffett famously noted that excessive size can hinder investment performance.
Examples of AUM
AUM serves as a benchmark for firms and funds to showcase their management capabilities.
Vanguard
As of March 31, 2024, Vanguard managed $9.3 trillion in assets, offering a diverse range of funds to investors globally.
Blackrock
By the end of the second quarter in 2024, Blackrock reported $10.6 trillion in AUM, supporting approximately 35 million Americans in their retirement savings.
SPDR S&P 500 ETF Trust
The SPDR S&P 500 ETF Trust had $560.6 billion in AUM as of Aug. 28, 2024, aiming to mirror the S&P 500 index’s performance with an expense ratio of 0.095%.