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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 Value Prim 1.70% 5.90% NO -57.7% -19.8% -9.7%
82 GFACX American Funds Grth Fund of Amer C 1.50% 6.84% NO -39.9% -6.3% 0.5%
95 RYLPX Royce Low-Priced Stock Svc 1.49% 6.19% NO -38.3% -4.5% 1.6%
94 BALCX American Funds American Balanced C 1.48% 7.06% NO -28.4% -3.6% 0.3%
100 GTVLX AIM Basic Value A 1.34% 5.50% YES -52.8% -15.5% -6.2%
90 FAEGX Fidelity Advisor Equity Growth T 1.32% 6.20% YES -43.1% -6.1% -2.4%
42 CVGRX Calamos Growth A 1.31% 3.74% YES -48.1% -9.9% -2.5%
93 BJBIX Julius Baer International Equity A 1.31% 4.49% NO N/A% N/A% N/A%
73 CSTGX AIM Constellation A 1.29% 5.08% YES -44.8% -9.8% -3.5%
69 DIVBX Morgan Stanley Dividend Growth Secs B 1.28% 6.57% NO -41.9% -8.9% -2.5%
85 SNIVX Bernstein Tax-Managed Intl Port 1.24% 4.20% NO -51.5% -9.4% 0.3%
26 TEMFX Templeton Foreign A 1.23% 4.58% YES -43.5% -6.1% 2.1%
65 ARTIX Artisan International Inv 1.22% 4.61% NO N/A% N/A% N/A%
17 FDIVX Fidelity Diversified International 1.22% 5.19% NO -45.3% -5.1% 4.2%
98 OAKIX Oakmark International I 1.20% 3.73% NO -44.1% -6.8% 3.3%
38 SMCWX American Funds Smallcap World A 1.12% 4.87% YES -48.5% -5.3% 3.4%
92 NBGEX Neuberger Berman Genesis Tr 1.10% 3.43% NO -28.9% -1.3% 6.7%
91 PNOPX Putnam New Opportunities A 1.09% 6.97% YES -40.9% -8.6% -2.1%
78 PIODX Pioneer A 1.09% 6.26% YES -37.3% -5.1% 0.8%
71 OPTFX Oppenheimer Capital Appreciation A 1.09% 5.70% YES -45.2% -8.9% -3.3%
62 OAKMX Oakmark I 1.05% 3.75% NO -37.4% -6.8% -1.5%
51 PVOYX Putnam Voyager A 1.04% 6.92% YES -40.1% -9.9% -4.5%
87 JIEIX Julius Baer International Equity I 1.02% 3.28% NO N/A% N/A% N/A%
97 FOSFX Fidelity Overseas 1.00% 3.73% NO -47.8% -4.6% 3.0%
61 MSIQX Morgan Stanley Inst International Eq I 1.00% 3.81% NO -36.9% -3.9% 4.0%
19 TWCUX American Century Ultra Inv 1.00% 3.88% NO -39.5% -9.3% -3.7%
75 OAKLX Oakmark Select I 1.00% 2.81% NO -47.2% -13.4% -5.5%
40 FDVLX Fidelity Value 0.98% 4.16% NO -47.1% -9.7% 0.8%
6 FCNTX Fidelity Contrafund 0.98% 2.70% NO -35.9% -2.6% 4.1%
58 FRSGX Franklin Small-Mid Cap Growth A 0.98% 5.13% YES -45.5% -8.6% -0.6%
7 FLPSX Fidelity Low-Priced Stock 0.97% 3.41% NO -40.9% -7.1% 1.9%
60 TRBCX T. Rowe Price Blue Chip Growth 0.95% 6.55% NO -42.3% -7.3% -1.6%
80 MIGFX MFS Massachusetts Investors Gr Stk A 0.95% 4.22% YES -36.4% -6.5% -1.8%
55 OAKBX Oakmark Equity & Income I 0.92% 2.63% NO -15.4% 2.4% 6.3%
88 PRITX T. Rowe Price International Stock 0.92% 5.33% NO -47.5% -7.6% 0.9%
72 PRNHX T. Rowe Price New Horizons 0.91% 4.14% NO -42.7% -8.8% 0.2%
53 LLPFX Longleaf Partners 0.91% 2.11% NO -51.9% -11.9% -4.6%
28 JANSX Janus 0.90% 2.93% NO -40.4% -6.3% -1.8%
47 PTTAX PIMCO Total Return A 0.90% 4.77% YES 3.2% 3.8% 3.9%
33 PGRWX Putnam Fund for Growth & Income A 0.90% 5.80% YES -46.7% -11.8% -3.6%
39 ACSTX Van Kampen Comstock A 0.90% 3.45% YES -41.2% -8.1% -0.7%
22 FDGFX Fidelity Dividend Growth 0.89% 3.70% NO -46.7% -10.8% -4.8%
64 MSFRX MFS Total Return A 0.89% 3.08% YES -26.6% -3.1% 1.5%
63 ANEFX American Funds New Economy A 0.89% 3.59% YES -43.4% -5.7% 0.3%
67 FDCAX Fidelity Capital Appreciation 0.88% 3.07% NO -47.1% -9.1% -2.7%
8 AEPGX American Funds EuroPacific Gr A 0.87% 3.61% YES -41.0% -2.1% 6.4%
31 RPMGX T. Rowe Price Mid-Cap Growth 0.87% 3.57% NO -39.5% -5.2% 2.9%
50 HAINX Harbor International Instl 0.86% 2.86% NO -43.7% 0.2% 8.1%
76 ACGIX Van Kampen Growth and Income A 0.86% 4.09% YES -36.1% -6.0% 1.8%
27 LAFFX Lord Abbett Affiliated A 0.84% 4.48% YES -42.7% -8.0% -1.3%
74 TFEQX Templeton Instl Foreign Equity 0.83% 3.10% NO -41.8% -2.1% 6.5%
57 ACEIX Van Kampen Equity and Income A 0.83% 3.32% YES -28.6% -4.1% 2.1%
99 FRESX Fidelity Real Estate Investment 0.83% 6.70% NO -45.1% -8.4% 2.9%
48 ACRNX Columbia Acorn Z 0.80% 4.21% NO -42.1% -6.8% 2.7%
25 PRFDX T. Rowe Price Equity Income 0.78% 4.08% NO -39.2% -6.2% 0.7%
83 FFFEX Fidelity Freedom 2030 0.77% 5.11% NO -37.9% -5.4% 0.4%
54 PRGFX T. Rowe Price Growth Stock 0.76% 5.03% NO -42.1% -6.8% -0.8%
44 FFFDX Fidelity Freedom 2020 0.75% 4.16% NO -32.6% -4.0% 1.0%
30 AMCPX American Funds Amcap A 0.73% 3.03% YES -38.6% -6.8% -1.2%
35 FASMX Fidelity Asset Manager 50% 0.73% 2.38% NO -28.6% -4.0% -0.5%
52 VEXPX Vanguard Explorer 0.72% 5.40% NO -42.9% -8.8% -1.3%
49 GFAFX American Funds Grth Fund of Amer F 0.72% 2.98% NO -39.4% -5.6% 1.3%
14 FEQIX Fidelity Equity-Income 0.70% 4.20% NO -46.5% -9.2% -1.8%
4 AGTHX American Funds Grth Fund of Amer A 0.70% 2.88% YES -39.4% -5.6% 1.3%
2 FMAGX Fidelity Magellan 0.70% 5.87% NO -48.1% -10.5% -4.0%
96 HIADX Hartford Dividend & Growth HLS IA 0.69% 3.09% NO -38.1% -4.2% 2.0%
9 FGRIX Fidelity Growth & Income 0.69% 2.91% NO -53.4% -16.1% -7.5%
37 HIACX Hartford Capital Appreciation HLS IA 0.69% 2.41% NO -46.9% -6.5% 3.1%
23 PTRAX PIMCO Total Return Admin 0.68% 3.69% NO 3.4% 4.0% 4.2%
66 HACAX Harbor Capital Appreciation Instl 0.67% 2.73% NO -36.5% -6.9% -0.4%
13 ABALX American Funds American Balanced A 0.67% 2.72% YES -27.8% -2.9% 1.2%
41 HADAX Hartford Advisers HLS IA 0.67% 2.81% NO -34.7% -5.7% -1.1%
16 FBGRX Fidelity Blue Chip Growth 0.67% 5.35% NO -37.6% -7.0% -2.4%
20 ANCFX American Funds Fundamental Invs A 0.66% 2.67% YES -39.7% -3.8% 3.5%
10 CAIBX American Funds Capital Inc Bldr A 0.65% 1.35% YES -32.0% -1.1% 4.6%
45 FMCSX Fidelity Mid-Cap Stock 0.65% 2.92% NO -49.2% -9.1% -1.5%
29 FEQTX Fidelity Equity-Income II 0.64% 2.89% NO -44.4% -9.4% -2.8%
3 AWSHX American Funds Washington Mutual A 0.64% 3.72% YES -38.6% -5.4% 0.1%
15 FPURX Fidelity Puritan 0.64% 2.80% NO -30.2% -3.0% 1.5%
32 AMRMX American Funds American Mutual A 0.62% 3.01% YES -34.5% -4.3% 1.0%
89 WOBDX JPMorgan Core Bond Select 0.60% 2.70% NO 3.3% 3.9% 3.8%
36 FFIDX Fidelity 0.59% 3.46% NO -40.0% -5.1% 0.1%
1 AIVSX American Funds Invmt Co of Amer A 0.59% 2.81% YES -38.1% -5.5% 0.6%
70 DFSVX DFA U.S. Small Cap Value I 0.56% 2.32% NO -43.1% -9.6% 1.4%
86 FDETX Fidelity Advisor Capital Development O 0.55% 1.80% YES -41.8% -6.7% -1.2%
21 DODBX Dodge & Cox Balanced 0.54% 1.52% NO -37.5% -7.8% -0.5%
84 VWUSX Vanguard U.S. Growth 0.53% 1.84% NO -37.7% -7.6% -1.9%
77 HSTAX Hartford Stock HLS IA 0.49% 2.25% NO -46.7% -9.5% -2.9%
18 VPMCX Vanguard PRIMECAP 0.46% 1.69% NO -33.3% -2.4% 3.5%
56 VWIGX Vanguard International Growth 0.45% 1.36% NO -46.2% -4.5% 3.9%
59 DODIX Dodge & Cox Income 0.45% 1.36% NO -4.4% 1.5% 2.3%
5 PTTRX PIMCO Total Return Instl 0.43% 2.31% NO 3.7% 4.2% 4.4%
43 PTLDX PIMCO Low Duration Instl 0.43% 1.22% NO -0.1% 2.9% 2.6%
68 VQNPX Vanguard Growth & Income 0.42% 3.11% NO -42.1% -8.1% -1.4%
24 VWNDX Vanguard Windsor 0.39% 1.75% NO -49.1% -11.7% -3.2%
11 VWNFX Vanguard Windsor II 0.36% 1.06% NO -42.8% -8.0% 1.0%
12 VWELX Vanguard Wellington 0.36% 0.94% NO -27.3% -1.6% 3.3%
81 VWNAX Vanguard Windsor II Adm 0.25% 0.47% NO -42.7% -7.9% 1.1%
79 VWENX Vanguard Wellington Adm 0.23% 0.34% NO -27.3% -1.5% 3.5%
Data updated as of: October 9, 2008
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