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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
50 HAINX Harbor International Instl 0.86% 2.86% NO 39.2% 1.2% 10.6%
8 AEPGX American Funds EuroPacific Gr A 0.87% 3.61% YES 42.1% 1.2% 9.3%
74 TFEQX Templeton Instl Foreign Equity Ser Adv 0.83% 3.10% NO 35.7% -0.8% 7.8%
98 OAKIX Oakmark International I 1.20% 3.73% NO 48.4% -1.9% 7.4%
56 VWIGX Vanguard International Growth 0.45% 1.36% NO 42.0% -1.5% 7.2%
87 JIEIX Artio International Equity I 1.02% 3.28% NO 23.7% -4.1% 7.0%
5 PTTRX PIMCO Total Return Instl 0.43% 2.31% NO 17.7% 9.2% 7.0%
65 ARTIX Artisan International Inv 1.22% 4.61% NO 41.2% -2.0% 6.8%
93 BJBIX Artio International Equity A 1.31% 4.49% NO 23.4% -4.3% 6.7%
23 PTRAX PIMCO Total Return Admin 0.68% 3.69% NO 17.4% 8.9% 6.7%
38 SMCWX American Funds SMALLCAP World A 1.12% 4.87% YES 45.1% -2.4% 6.6%
47 PTTAX PIMCO Total Return A 0.90% 4.77% YES 17.2% 8.7% 6.5%
55 OAKBX Oakmark Equity & Income I 0.92% 2.63% NO 15.8% 4.3% 6.4%
26 TEMFX Templeton Foreign A 1.23% 4.58% YES 48.0% 0.0% 6.4%
88 PRITX T. Rowe Price International Stock 0.92% 5.33% NO 46.6% -1.8% 5.7%
92 NBGEX Neuberger Berman Genesis Tr 1.10% 3.43% NO 17.0% 0.8% 5.6%
95 RYLPX Royce Low Priced Stock Svc 1.49% 6.19% NO 52.2% -0.2% 5.6%
89 WOBDX JPMorgan Core Bond Select 0.60% 2.70% NO 13.9% 7.0% 5.5%
37 HIACX Hartford Capital Appreciation HLS IA 0.69% 2.41% NO 37.2% -2.5% 5.5%
31 RPMGX T. Rowe Price Mid-Cap Growth 0.87% 3.57% NO 41.9% 0.9% 5.4%
79 VWENX Vanguard Wellington Adm 0.23% 0.34% NO 24.4% 1.4% 5.4%
59 DODIX Dodge & Cox Income 0.45% 1.36% NO 21.2% 6.5% 5.3%
17 FDIVX Fidelity Diversified International 1.22% 5.19% NO 31.9% -4.2% 5.3%
6 FCNTX Fidelity Contrafund 0.98% 2.70% NO 22.6% -1.2% 5.3%
12 VWELX Vanguard Wellington 0.36% 0.94% NO 24.2% 1.3% 5.2%
63 ANEFX American Funds New Economy A 0.89% 3.59% YES 40.1% -1.1% 5.0%
43 PTLDX PIMCO Low Duration Instl 0.43% 1.22% NO 13.9% 6.5% 4.9%
97 FOSFX Fidelity Overseas 1.00% 3.73% NO 27.7% -4.9% 4.7%
61 MSIQX Morgan Stanley Inst International Eq I 1.00% 3.81% NO 25.4% -2.5% 4.7%
10 CAIBX American Funds Capital Inc Bldr A 0.65% 1.35% YES 20.2% -1.2% 4.6%
20 ANCFX American Funds Fundamental Investors A 0.66% 2.67% YES 27.2% -2.8% 4.4%
7 FLPSX Fidelity Low-Priced Stock 0.97% 3.41% NO 38.6% -2.0% 4.3%
18 VPMCX Vanguard PRIMECAP 0.46% 1.69% NO 23.0% -0.7% 4.3%
48 ACRNX Columbia Acorn Z 0.80% 4.21% NO 32.7% -3.0% 4.1%
57 ACEIX Van Kampen Equity and Income A 0.83% 3.32% YES 23.0% -0.8% 3.9%
96 HIADX Hartford Dividend & Growth HLS IA 0.69% 3.09% NO 22.6% -2.4% 3.7%
51 PVOYX Putnam Voyager A 1.04% 6.92% YES 56.6% 2.1% 3.6%
45 FMCSX Fidelity Mid-Cap Stock 0.65% 2.92% NO 43.2% -5.0% 3.6%
66 HACAX Harbor Capital Appreciation Instl 0.67% 2.73% NO 33.9% -0.1% 3.5%
49 GFAFX American Funds Growth Fund of Amer F-1 0.72% 2.98% NO 26.9% -3.2% 3.3%
4 AGTHX American Funds Growth Fund of Amer A 0.70% 2.88% YES 26.9% -3.2% 3.3%
44 FFFDX Fidelity Freedom 2020 0.75% 4.16% NO 24.8% -1.4% 3.2%
72 PRNHX T. Rowe Price New Horizons 0.91% 4.14% NO 37.0% -2.6% 3.1%
15 FPURX Fidelity Puritan 0.64% 2.80% NO 22.6% -1.4% 3.0%
35 FASMX Fidelity Asset Manager 50% 0.73% 2.38% NO 27.6% 0.3% 2.9%
76 ACGIX Van Kampen Growth and Income A 0.86% 4.09% YES 20.1% -3.8% 2.9%
64 MSFRX MFS Total Return A 0.89% 3.08% YES 17.7% -0.8% 2.7%
41 HADAX Hartford Advisers HLS IA 0.67% 2.81% NO 28.1% -1.5% 2.6%
83 FFFEX Fidelity Freedom 2030 0.77% 5.11% NO 25.7% -3.1% 2.6%
82 GFACX American Funds Growth Fund of Amer C 1.50% 6.84% NO 26.0% -4.0% 2.5%
54 PRGFX T. Rowe Price Growth Stock 0.76% 5.03% NO 34.4% -2.8% 2.5%
13 ABALX American Funds American Balanced A 0.67% 2.72% YES 18.4% -1.2% 2.3%
58 FRSGX Franklin Small-Mid Cap Growth A 0.98% 5.13% YES 32.3% -3.3% 2.2%
80 MIGFX MFS Massachusetts Investors Gr Stk A 0.95% 4.22% YES 29.9% -1.2% 2.2%
32 AMRMX American Funds American Mutual A 0.62% 3.01% YES 20.2% -3.3% 2.1%
28 JANSX Janus J 0.90% 2.93% NO 31.6% -2.0% 2.1%
62 OAKMX Oakmark I 1.05% 3.75% NO 38.8% -1.7% 2.0%
36 FFIDX Fidelity 0.59% 3.46% NO 21.4% -3.5% 2.0%
1 AIVSX American Funds Invmt Co of Amer A 0.59% 2.81% YES 21.9% -4.3% 1.9%
30 AMCPX American Funds AMCAP A 0.73% 3.03% YES 31.7% -2.7% 1.8%
60 TRBCX T. Rowe Price Blue Chip Growth 0.95% 6.55% NO 33.2% -2.4% 1.8%
16 FBGRX Fidelity Blue Chip Growth 0.67% 5.35% NO 33.7% -1.1% 1.7%
77 HSTAX Hartford Stock HLS IA 0.49% 2.25% NO 34.3% -4.9% 1.6%
21 DODBX Dodge & Cox Balanced 0.54% 1.52% NO 26.5% -4.3% 1.6%
84 VWUSX Vanguard US Growth 0.53% 1.84% NO 27.6% -2.3% 1.6%
81 VWNAX Vanguard Windsor II Adm 0.25% 0.47% NO 23.5% -5.5% 1.6%
85 SNIVX Bernstein Tax-Managed Intl 1.24% 4.20% NO 27.1% -9.3% 1.5%
78 PIODX Pioneer A 1.09% 6.26% YES 17.8% -5.0% 1.5%
11 VWNFX Vanguard Windsor II 0.36% 1.06% NO 23.4% -5.6% 1.4%
42 CVGRX Calamos Growth A 1.31% 3.74% YES 42.1% -2.5% 1.4%
94 BALCX American Funds American Balanced C 1.48% 7.06% NO 17.4% -2.0% 1.4%
25 PRFDX T. Rowe Price Equity Income 0.78% 4.08% NO 20.8% -5.5% 1.4%
40 FDVLX Fidelity Value 0.98% 4.16% NO 34.4% -7.7% 1.2%
52 VEXPX Vanguard Explorer 0.72% 5.40% NO 27.5% -5.8% 0.9%
91 PNOPX Putnam New Opportunities A 1.09% 6.97% YES 25.9% -5.0% 0.9%
67 FDCAX Fidelity Capital Appreciation 0.88% 3.07% NO 24.9% -5.8% 0.8%
22 FDGFX Fidelity Dividend Growth 0.89% 3.70% NO 42.2% -4.6% 0.7%
70 DFSVX DFA US Small Cap Value I 0.56% 2.32% NO 24.1% -9.2% 0.7%
39 ACSTX Van Kampen Comstock A 0.90% 3.45% YES 23.2% -6.1% 0.3%
3 AWSHX American Funds Washington Mutual A 0.64% 3.72% YES 14.2% -6.1% 0.3%
86 FDETX Fidelity Advisor Capital Development O 0.55% 1.80% YES 22.4% -5.1% 0.3%
14 FEQIX Fidelity Equity-Income 0.70% 4.20% NO 25.4% -7.7% 0.1%
75 OAKLX Oakmark Select I 1.00% 2.81% NO 51.3% -6.0% 0.1%
71 OPTFX Oppenheimer Capital Appreciation A 1.09% 5.70% YES 31.1% -4.5% -0.1%
24 VWNDX Vanguard Windsor 0.39% 1.75% NO 30.7% -8.0% -0.2%
27 LAFFX Lord Abbett Affiliated A 0.84% 4.48% YES 16.2% -7.2% -0.2%
99 FRESX Fidelity Real Estate Investment 0.83% 6.70% NO 18.7% -14.5% -0.4%
2 FMAGX Fidelity Magellan 0.70% 5.87% NO 33.4% -5.5% -0.5%
19 TWCUX American Century Ultra Inv 1.00% 3.88% NO 27.0% -1.8% -0.7%
53 LLPFX Longleaf Partners 0.91% 2.11% NO 42.4% -9.8% -0.8%
68 VQNPX Vanguard Growth & Income 0.42% 3.11% NO 17.0% -7.7% -0.8%
29 FEQTX Fidelity Equity-Income II 0.64% 2.89% NO 21.3% -7.3% -0.8%
69 DIVBX Morgan Stanley Dividend Growth Secs B 1.28% 6.57% NO 19.8% -6.6% -0.9%
90 FAEGX Fidelity Advisor Equity Growth T 1.32% 6.20% YES 13.8% -6.3% -1.0%
33 PGRWX Putnam for Growth & Income A 0.90% 5.80% YES 24.5% -8.9% -1.6%
100 GTVLX AIM Basic Value A 1.34% 5.50% YES 40.6% -9.1% -2.0%
73 CSTGX AIM Constellation A 1.29% 5.08% YES 15.1% -8.4% -2.0%
34 LMVTX LM CM Value Trust, C 1.70% 5.90% NO 32.6% -15.6% -6.7%
9 FGRIX Fidelity Growth & Income 0.69% 2.91% NO 12.7% -15.0% -6.9%
Data updated as of: November 9, 2009
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