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