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Mutual Funds
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Funds: How much you're really paying
You may be shelling out up to 10 times more than you thought. Plus: 'Real' expenses for the 100 largest funds.
From the November 2005 issue of MONEY Magazine
by Jason Zweig, MONEY Magazine
From MONEY Magazine
Full text of Jason Zweig's feature from the November issue »»

The MONEY 50: MONEY's picks for the best funds in every category »»

TABLE: Stated versus active expense ratios for the 100 largest funds »»
NEW YORK (MONEY magazine) - Whether you're shopping for a car or a mutual fund, the two questions you must answer are "What will it cost me?" and "What's it worth to me?"

You can answer the first by checking a fund's expense ratio, which shows what percentage of your total investment will be eaten up each year in overhead.

Determining what a fund is worth to you is a trickier proposition, one taken on recently by Ross Miller, a risk consultant and former finance professor at Boston University.

Miller kills two birds with one stone: First he confronts the fact that luck looms large in stock picking.

Then he zeroes in on funds that barely bother trying to beat the market. There's not much value in either a lucky or a half-hearted fund.

On average, if eight blindfolded chimpanzees threw darts at the stock pages of the Wall Street Journal for three years, one of them would end up beating the market.

Humans and chimps share roughly 98 percent of the same genes, but that doesn't make it a good idea to give your money to a stock picker who munches on bananas and termites. Our chimp isn't a great investor -- he's just lucky.

Most human stock pickers on a hot streak are just lucky too. You wouldn't want to buy their funds right before their luck runs out.

So Miller adjusts returns for the risk the managers took to earn them.

Meanwhile, many managers are so afraid of lagging the market that they end up copying it, owning similar proportions of the stocks that carry the most weight in the index.

Using some complex math, Miller estimates how much of the fund is imitating the market instead of trying to beat it.

This, he says, "unbundles" your money into a passive portion that might as well be in a cheap index fund and a second (usually much smaller) part with which the manager is more aggressively trying to beat the market.

This makes sense. Why should you have to pay a full management fee on the portion of your money that is not being actively managed?

By Miller's adjusted measure, or the "active expense ratio," Fidelity Magellan's annual costs are not 0.7 percent but 5.87 percent -- and the annual expenses on big U.S. stock funds average around 7%.

(All numbers used here and in the table below are as of Dec. 31, 2004.)

If you buy Miller's argument, many funds cost from five to nearly 10 times more than you thought.

A 3 percent or 4 percent active expense ratio, coupled with solid risk-adjusted returns, is "pretty good," he says.

If you're going to invest outside an index fund, you should look for something the index doesn't offer -- like higher income, lower risk or a shot at outsize returns.

Below are the Miller's active expense ratios for the 100 largest funds ranked by asset size.

Using Miller's score, you're less likely to end up with another sheep-like fund that charges you as if the manager were a lone wolf doing something original.
Size
rank		 Ticker Fund name Stated
expense
ratio		 Active
expense
ratio		 Load 1-yr
return		 3-yr
return		 5-yr
return
51 PVOYX Putnam Voyager A 1.04% 6.92% YES 56.8% 1.4% 3.1%
75 OAKLX Oakmark Select I 1.00% 2.81% NO 52.8% -6.4% -0.3%
98 OAKIX Oakmark International I 1.20% 3.73% NO 51.3% -2.2% 6.9%
95 RYLPX Royce Low Priced Stock Svc 1.49% 6.19% NO 50.9% -0.6% 5.2%
88 PRITX T. Rowe Price International Stock 0.92% 5.33% NO 49.8% -2.7% 5.0%
26 TEMFX Templeton Foreign A 1.23% 4.58% YES 49.3% -0.6% 5.8%
38 SMCWX American Funds SMALLCAP World A 1.12% 4.87% YES 45.1% -3.0% 6.0%
56 VWIGX Vanguard International Growth 0.45% 1.36% NO 44.7% -2.5% 6.6%
8 AEPGX American Funds EuroPacific Gr A 0.87% 3.61% YES 43.7% 0.2% 8.6%
65 ARTIX Artisan International Inv 1.22% 4.61% NO 43.6% -3.1% 6.1%
45 FMCSX Fidelity Mid-Cap Stock 0.65% 2.92% NO 43.2% -6.0% 3.0%
53 LLPFX Longleaf Partners 0.91% 2.11% NO 43.0% -10.1% -1.1%
50 HAINX Harbor International Instl 0.86% 2.86% NO 42.4% 0.1% 9.9%
22 FDGFX Fidelity Dividend Growth 0.89% 3.70% NO 42.2% -5.7% 0.2%
31 RPMGX T. Rowe Price Mid-Cap Growth 0.87% 3.57% NO 42.0% 0.3% 4.9%
42 CVGRX Calamos Growth A 1.31% 3.74% YES 41.7% -3.4% 1.0%
63 ANEFX American Funds New Economy A 0.89% 3.59% YES 40.3% -1.8% 4.4%
100 GTVLX AIM Basic Value A 1.34% 5.50% YES 40.1% -9.9% -2.6%
62 OAKMX Oakmark I 1.05% 3.75% NO 38.6% -2.4% 1.5%
7 FLPSX Fidelity Low-Priced Stock 0.97% 3.41% NO 38.1% -2.5% 3.9%
37 HIACX Hartford Capital Appreciation HLS IA 0.69% 2.41% NO 37.7% -3.3% 4.9%
72 PRNHX T. Rowe Price New Horizons 0.91% 4.14% NO 36.8% -3.4% 2.7%
74 TFEQX Templeton Instl Foreign Equity Ser Adv 0.83% 3.10% NO 36.3% -1.4% 7.2%
77 HSTAX Hartford Stock HLS IA 0.49% 2.25% NO 35.4% -5.5% 1.1%
54 PRGFX T. Rowe Price Growth Stock 0.76% 5.03% NO 35.1% -3.6% 2.0%
66 HACAX Harbor Capital Appreciation Instl 0.67% 2.73% NO 34.5% -0.8% 3.0%
17 FDIVX Fidelity Diversified International 1.22% 5.19% NO 34.4% -5.0% 4.7%
60 TRBCX T. Rowe Price Blue Chip Growth 0.95% 6.55% NO 34.2% -3.2% 1.3%
34 LMVTX LM CM Value Trust, C 1.70% 5.90% NO 34.1% -16.2% -7.0%
16 FBGRX Fidelity Blue Chip Growth 0.67% 5.35% NO 34.0% -1.9% 1.2%
40 FDVLX Fidelity Value 0.98% 4.16% NO 33.8% -8.5% 0.6%
2 FMAGX Fidelity Magellan 0.70% 5.87% NO 33.6% -6.4% -1.1%
48 ACRNX Columbia Acorn Z 0.80% 4.21% NO 32.3% -3.6% 3.6%
28 JANSX Janus J 0.90% 2.93% NO 32.2% -2.7% 1.6%
58 FRSGX Franklin Small-Mid Cap Growth A 0.98% 5.13% YES 32.0% -4.0% 1.8%
30 AMCPX American Funds AMCAP A 0.73% 3.03% YES 31.6% -3.3% 1.4%
97 FOSFX Fidelity Overseas 1.00% 3.73% NO 31.5% -5.7% 4.0%
71 OPTFX Oppenheimer Capital Appreciation A 1.09% 5.70% YES 31.4% -5.2% -0.6%
80 MIGFX MFS Massachusetts Investors Gr Stk A 0.95% 4.22% YES 31.2% -1.8% 1.7%
24 VWNDX Vanguard Windsor 0.39% 1.75% NO 30.9% -8.6% -0.7%
85 SNIVX Bernstein Tax-Managed Intl 1.24% 4.20% NO 28.8% -10.4% 0.8%
41 HADAX Hartford Advisers HLS IA 0.67% 2.81% NO 28.6% -1.9% 2.2%
35 FASMX Fidelity Asset Manager 50% 0.73% 2.38% NO 27.9% -0.1% 2.6%
84 VWUSX Vanguard US Growth 0.53% 1.84% NO 27.8% -3.2% 1.1%
52 VEXPX Vanguard Explorer 0.72% 5.40% NO 27.4% -6.4% 0.6%
20 ANCFX American Funds Fundamental Investors A 0.66% 2.67% YES 27.3% -3.5% 3.9%
19 TWCUX American Century Ultra Inv 1.00% 3.88% NO 27.2% -2.6% -1.1%
61 MSIQX Morgan Stanley Inst International Eq I 1.00% 3.81% NO 27.1% -3.2% 4.0%
49 GFAFX American Funds Growth Fund of Amer F-1 0.72% 2.98% NO 27.1% -3.8% 2.8%
4 AGTHX American Funds Growth Fund of Amer A 0.70% 2.88% YES 27.0% -3.9% 2.8%
21 DODBX Dodge & Cox Balanced 0.54% 1.52% NO 26.8% -4.8% 1.2%
91 PNOPX Putnam New Opportunities A 1.09% 6.97% YES 26.6% -5.8% 0.5%
82 GFACX American Funds Growth Fund of Amer C 1.50% 6.84% NO 26.0% -4.6% 2.0%
83 FFFEX Fidelity Freedom 2030 0.77% 5.11% NO 26.0% -3.8% 2.1%
14 FEQIX Fidelity Equity-Income 0.70% 4.20% NO 25.9% -8.4% -0.4%
67 FDCAX Fidelity Capital Appreciation 0.88% 3.07% NO 25.3% -6.6% 0.2%
44 FFFDX Fidelity Freedom 2020 0.75% 4.16% NO 25.0% -2.0% 2.8%
79 VWENX Vanguard Wellington Adm 0.23% 0.34% NO 24.9% 0.9% 5.0%
12 VWELX Vanguard Wellington 0.36% 0.94% NO 24.8% 0.8% 4.9%
33 PGRWX Putnam for Growth & Income A 0.90% 5.80% YES 24.3% -9.7% -2.0%
81 VWNAX Vanguard Windsor II Adm 0.25% 0.47% NO 24.1% -6.3% 1.1%
18 VPMCX Vanguard PRIMECAP 0.46% 1.69% NO 24.0% -1.7% 3.7%
11 VWNFX Vanguard Windsor II 0.36% 1.06% NO 24.0% -6.4% 1.0%
96 HIADX Hartford Dividend & Growth HLS IA 0.69% 3.09% NO 23.8% -3.1% 3.2%
39 ACSTX Van Kampen Comstock A 0.90% 3.45% YES 23.6% -6.9% -0.1%
87 JIEIX Artio International Equity I 1.02% 3.28% NO 23.5% -5.0% 6.2%
93 BJBIX Artio International Equity A 1.31% 4.49% NO 23.2% -5.2% 6.0%
6 FCNTX Fidelity Contrafund 0.98% 2.70% NO 23.0% -1.8% 4.8%
57 ACEIX Van Kampen Equity and Income A 0.83% 3.32% YES 22.8% -1.4% 3.5%
15 FPURX Fidelity Puritan 0.64% 2.80% NO 22.8% -1.8% 2.7%
70 DFSVX DFA US Small Cap Value I 0.56% 2.32% NO 22.7% -9.8% 0.2%
1 AIVSX American Funds Invmt Co of Amer A 0.59% 2.81% YES 22.4% -4.9% 1.5%
86 FDETX Fidelity Advisor Capital Development O 0.55% 1.80% YES 22.2% -6.0% -0.3%
29 FEQTX Fidelity Equity-Income II 0.64% 2.89% NO 22.1% -8.2% -1.4%
36 FFIDX Fidelity 0.59% 3.46% NO 22.0% -4.3% 1.5%
10 CAIBX American Funds Capital Inc Bldr A 0.65% 1.35% YES 21.2% -1.6% 4.3%
25 PRFDX T. Rowe Price Equity Income 0.78% 4.08% NO 21.1% -6.2% 0.9%
59 DODIX Dodge & Cox Income 0.45% 1.36% NO 20.9% 6.6% 5.3%
32 AMRMX American Funds American Mutual A 0.62% 3.01% YES 20.8% -3.9% 1.7%
76 ACGIX Van Kampen Growth and Income A 0.86% 4.09% YES 20.6% -4.6% 2.4%
69 DIVBX Morgan Stanley Dividend Growth Secs B 1.28% 6.57% NO 20.4% -7.3% -1.4%
99 FRESX Fidelity Real Estate Investment 0.83% 6.70% NO 19.0% -16.3% -1.3%
13 ABALX American Funds American Balanced A 0.67% 2.72% YES 18.6% -1.6% 1.9%
78 PIODX Pioneer A 1.09% 6.26% YES 18.5% -5.8% 1.1%
68 VQNPX Vanguard Growth & Income 0.42% 3.11% NO 18.1% -8.4% -1.3%
64 MSFRX MFS Total Return A 0.89% 3.08% YES 17.8% -1.3% 2.4%
94 BALCX American Funds American Balanced C 1.48% 7.06% NO 17.7% -2.4% 1.1%
5 PTTRX PIMCO Total Return Instl 0.43% 2.31% NO 17.4% 9.3% 6.9%
23 PTRAX PIMCO Total Return Admin 0.68% 3.69% NO 17.1% 9.1% 6.7%
47 PTTAX PIMCO Total Return A 0.90% 4.77% YES 16.8% 8.8% 6.4%
92 NBGEX Neuberger Berman Genesis Tr 1.10% 3.43% NO 16.8% 0.4% 5.2%
73 CSTGX AIM Constellation A 1.29% 5.08% YES 16.1% -9.1% -2.5%
27 LAFFX Lord Abbett Affiliated A 0.84% 4.48% YES 15.6% -8.0% -0.8%
3 AWSHX American Funds Washington Mutual A 0.64% 3.72% YES 15.3% -6.8% -0.1%
55 OAKBX Oakmark Equity & Income I 0.92% 2.63% NO 15.1% 3.9% 6.0%
90 FAEGX Fidelity Advisor Equity Growth T 1.32% 6.20% YES 14.5% -7.1% -1.5%
43 PTLDX PIMCO Low Duration Instl 0.43% 1.22% NO 13.7% 6.5% 4.9%
89 WOBDX JPMorgan Core Bond Select 0.60% 2.70% NO 13.7% 7.1% 5.5%
9 FGRIX Fidelity Growth & Income 0.69% 2.91% NO 13.5% -15.7% -7.4%
Data updated as of: November 6, 2009
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