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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
34 LMVTX Legg Mason Cap Mgmt Value C 1.70% 5.90% NO 49.7% -16.5% -7.7%
82 GFACX American Funds Growth Fund of Amer C 1.50% 6.84% NO 37.8% -4.3% 2.1%
95 RYLPX Royce Low Priced Stock Svc 1.49% 6.19% NO 72.5% -0.7% 5.0%
94 BALCX American Funds American Balanced C 1.48% 7.06% NO 24.2% -2.0% 1.4%
100 GTVLX AIM Basic Value A 1.34% 5.50% YES 54.4% -10.0% -2.8%
90 FAEGX Fidelity Advisor Equity Growth T 1.32% 6.20% YES 28.3% -6.3% -1.4%
42 CVGRX Calamos Growth A 1.31% 3.74% YES 56.8% -3.4% 0.1%
93 BJBIX Artio International Equity A 1.31% 4.49% NO 35.5% -5.2% 5.7%
73 CSTGX AIM Constellation A 1.29% 5.08% YES 23.5% -8.8% -2.6%
69 DIVBX Morgan Stanley Dividend Growth Secs B 1.28% 6.57% NO 28.7% -7.0% -1.2%
85 SNIVX Bernstein Tax-Managed Intl 1.24% 4.20% NO 40.9% -9.8% 0.7%
26 TEMFX Templeton Foreign A 1.23% 4.58% YES 65.9% -0.7% 5.2%
17 FDIVX Fidelity Diversified International 1.22% 5.19% NO 48.9% -4.5% 4.5%
65 ARTIX Artisan International Inv 1.22% 4.61% NO 58.4% -2.2% 6.0%
98 OAKIX Oakmark International I 1.20% 3.73% NO 65.5% -2.1% 6.8%
38 SMCWX American Funds SMALLCAP World A 1.12% 4.87% YES 64.3% -3.3% 5.6%
92 NBGEX Neuberger Berman Genesis Tr 1.10% 3.43% NO 27.2% -0.7% 4.7%
71 OPTFX Oppenheimer Capital Appreciation A 1.09% 5.70% YES 48.1% -5.1% -0.5%
78 PIODX Pioneer A 1.09% 6.26% YES 26.8% -5.2% 1.1%
91 PNOPX Putnam New Opportunities A 1.09% 6.97% YES 36.6% -5.8% 0.2%
62 OAKMX Oakmark I 1.05% 3.75% NO 51.6% -1.9% 1.9%
51 PVOYX Putnam Voyager A 1.04% 6.92% YES 69.8% 1.5% 3.2%
87 JIEIX Artio International Equity I 1.02% 3.28% NO 35.9% -5.0% 6.0%
61 MSIQX Morgan Stanley Inst International Eq I 1.00% 3.81% NO 36.6% -2.7% 3.7%
19 TWCUX American Century Ultra Inv 1.00% 3.88% NO 37.6% -1.8% -1.1%
75 OAKLX Oakmark Select I 1.00% 2.81% NO 64.3% -6.2% 0.0%
97 FOSFX Fidelity Overseas 1.00% 3.73% NO 41.7% -5.6% 3.7%
6 FCNTX Fidelity Contrafund 0.98% 2.70% NO 32.2% -1.6% 4.6%
58 FRSGX Franklin Small-Mid Cap Growth A 0.98% 5.13% YES 43.6% -4.5% 1.3%
40 FDVLX Fidelity Value 0.98% 4.16% NO 49.9% -8.5% 0.3%
7 FLPSX Fidelity Low-Priced Stock 0.97% 3.41% NO 49.4% -3.3% 3.2%
60 TRBCX T. Rowe Price Blue Chip Growth 0.95% 6.55% NO 45.8% -3.0% 1.2%
80 MIGFX MFS Massachusetts Investors Gr Stk A 0.95% 4.22% YES 43.9% -1.1% 1.8%
55 OAKBX Oakmark Equity & Income I 0.92% 2.63% NO 21.5% 3.8% 6.2%
88 PRITX T. Rowe Price International Stock 0.92% 5.33% NO 70.5% -2.3% 5.0%
72 PRNHX T. Rowe Price New Horizons 0.91% 4.14% NO 51.5% -3.7% 1.9%
53 LLPFX Longleaf Partners 0.91% 2.11% NO 64.4% -10.3% -1.3%
28 JANSX Janus J 0.90% 2.93% NO 46.3% -2.3% 1.8%
33 PGRWX Putnam for Growth & Income A 0.90% 5.80% YES 32.5% -9.5% -2.0%
47 PTTAX PIMCO Total Return A 0.90% 4.77% YES 18.3% 8.4% 6.5%
39 ACSTX Van Kampen Comstock A 0.90% 3.45% YES 34.9% -6.2% -0.1%
63 ANEFX American Funds New Economy A 0.89% 3.59% YES 51.7% -2.0% 4.0%
22 FDGFX Fidelity Dividend Growth 0.89% 3.70% NO 59.0% -5.1% 0.3%
64 MSFRX MFS Total Return A 0.89% 3.08% YES 22.9% -1.2% 2.3%
67 FDCAX Fidelity Capital Appreciation 0.88% 3.07% NO 38.8% -5.8% 0.1%
8 AEPGX American Funds EuroPacific Gr A 0.87% 3.61% YES 55.5% 0.9% 8.5%
31 RPMGX T. Rowe Price Mid-Cap Growth 0.87% 3.57% NO 53.1% -0.4% 4.4%
76 ACGIX Van Kampen Growth and Income A 0.86% 4.09% YES 30.4% -4.0% 2.4%
50 HAINX Harbor International Instl 0.86% 2.86% NO 57.0% 1.0% 9.9%
27 LAFFX Lord Abbett Affiliated A 0.84% 4.48% YES 25.3% -7.7% -0.9%
57 ACEIX Van Kampen Equity and Income A 0.83% 3.32% YES 28.5% -0.9% 3.5%
74 TFEQX Templeton Instl Foreign Equity Ser Adv 0.83% 3.10% NO 49.3% -1.2% 6.8%
99 FRESX Fidelity Real Estate Investment 0.83% 6.70% NO 55.8% -15.5% -0.8%
48 ACRNX Columbia Acorn Z 0.80% 4.21% NO 44.0% -4.0% 3.1%
25 PRFDX T. Rowe Price Equity Income 0.78% 4.08% NO 28.7% -5.7% 0.9%
83 FFFEX Fidelity Freedom 2030 0.77% 5.11% NO 36.3% -3.6% 2.1%
54 PRGFX T. Rowe Price Growth Stock 0.76% 5.03% NO 47.0% -3.3% 1.9%
44 FFFDX Fidelity Freedom 2020 0.75% 4.16% NO 34.1% -1.9% 2.7%
35 FASMX Fidelity Asset Manager 50% 0.73% 2.38% NO 36.1% -0.1% 2.7%
30 AMCPX American Funds AMCAP A 0.73% 3.03% YES 41.3% -3.2% 1.4%
49 GFAFX American Funds Growth Fund of Amer F-1 0.72% 2.98% NO 38.9% -3.5% 3.0%
52 VEXPX Vanguard Explorer 0.72% 5.40% NO 39.8% -6.8% -0.2%
2 FMAGX Fidelity Magellan 0.70% 5.87% NO 49.6% -6.2% -0.9%
4 AGTHX American Funds Growth Fund of Amer A 0.70% 2.88% YES 38.8% -3.5% 3.0%
14 FEQIX Fidelity Equity-Income 0.70% 4.20% NO 34.4% -8.1% -0.4%
9 FGRIX Fidelity Growth & Income 0.69% 2.91% NO 27.1% -15.8% -7.3%
96 HIADX Hartford Dividend & Growth HLS IA 0.69% 3.09% NO 31.4% -2.5% 3.5%
37 HIACX Hartford Capital Appreciation HLS IA 0.69% 2.41% NO 52.0% -2.8% 4.7%
23 PTRAX PIMCO Total Return Admin 0.68% 3.69% NO 18.5% 8.7% 6.8%
13 ABALX American Funds American Balanced A 0.67% 2.72% YES 25.1% -1.2% 2.2%
16 FBGRX Fidelity Blue Chip Growth 0.67% 5.35% NO 45.3% -1.3% 1.3%
66 HACAX Harbor Capital Appreciation Instl 0.67% 2.73% NO 44.3% -0.4% 3.0%
41 HADAX Hartford Advisers HLS IA 0.67% 2.81% NO 36.3% -1.7% 2.6%
20 ANCFX American Funds Fundamental Investors A 0.66% 2.67% YES 39.5% -2.9% 4.1%
10 CAIBX American Funds Capital Inc Bldr A 0.65% 1.35% YES 27.1% -1.4% 4.3%
45 FMCSX Fidelity Mid-Cap Stock 0.65% 2.92% NO 59.2% -5.6% 2.8%
29 FEQTX Fidelity Equity-Income II 0.64% 2.89% NO 28.9% -7.8% -1.4%
3 AWSHX American Funds Washington Mutual A 0.64% 3.72% YES 21.9% -5.8% 0.4%
15 FPURX Fidelity Puritan 0.64% 2.80% NO 29.9% -1.6% 2.8%
32 AMRMX American Funds American Mutual A 0.62% 3.01% YES 28.6% -3.1% 2.1%
89 WOBDX JPMorgan Core Bond Select 0.60% 2.70% NO 12.0% 6.7% 5.6%
36 FFIDX Fidelity 0.59% 3.46% NO 30.1% -4.2% 1.4%
1 AIVSX American Funds Invmt Co of Amer A 0.59% 2.81% YES 30.9% -4.1% 1.7%
70 DFSVX DFA US Small Cap Value I 0.56% 2.32% NO 36.7% -10.3% -1.0%
86 FDETX Fidelity Advisor Capital Development O 0.55% 1.80% YES 32.7% -5.4% -0.3%
21 DODBX Dodge & Cox Balanced 0.54% 1.52% NO 34.2% -4.7% 1.1%
84 VWUSX Vanguard US Growth Inv 0.53% 1.84% NO 36.6% -3.1% 0.7%
77 HSTAX Hartford Stock HLS IA 0.49% 2.25% NO 48.3% -5.1% 1.4%
18 VPMCX Vanguard PRIMECAP 0.46% 1.69% NO 38.1% -0.4% 4.2%
56 VWIGX Vanguard International Growth Inv 0.45% 1.36% NO 60.0% -1.9% 6.4%
59 DODIX Dodge & Cox Income 0.45% 1.36% NO 22.2% 6.4% 5.5%
43 PTLDX PIMCO Low Duration Instl 0.43% 1.22% NO 16.9% 6.2% 4.9%
5 PTTRX PIMCO Total Return Instl 0.43% 2.31% NO 18.8% 8.9% 7.0%
68 VQNPX Vanguard Growth & Income 0.42% 3.11% NO 26.5% -7.9% -1.3%
24 VWNDX Vanguard Windsor 0.39% 1.75% NO 40.9% -8.5% -0.8%
11 VWNFX Vanguard Windsor II 0.36% 1.06% NO 32.2% -5.8% 1.0%
12 VWELX Vanguard Wellington 0.36% 0.94% NO 28.9% 1.3% 5.2%
81 VWNAX Vanguard Windsor II Adm 0.25% 0.47% NO 32.4% -5.7% 1.2%
79 VWENX Vanguard Wellington Adm 0.23% 0.34% NO 29.1% 1.4% 5.3%
Data updated as of: December 3, 2009
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