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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
5 PTTRX PIMCO Total Return Instl 0.43% 2.31% NO 5.2% 6.4% 5.5%
23 PTRAX PIMCO Total Return Admin 0.68% 3.69% NO 4.9% 6.1% 5.2%
47 PTTAX PIMCO Total Return A 0.90% 4.77% YES 4.7% 5.9% 5.0%
89 WOBDX JPMorgan Core Bond Select 0.60% 2.70% NO 3.3% 5.1% 4.3%
59 DODIX Dodge & Cox Income 0.45% 1.36% NO 0.2% 3.4% 3.2%
43 PTLDX PIMCO Low Duration Instl 0.43% 1.22% NO -0.4% 3.8% 3.1%
55 OAKBX Oakmark Equity & Income I 0.92% 2.63% NO -13.6% 1.4% 4.7%
64 MSFRX MFS Total Return A 0.89% 3.08% YES -20.3% -3.7% 0.8%
79 VWENX Vanguard Wellington Adm 0.23% 0.34% NO -20.4% -1.4% 2.9%
12 VWELX Vanguard Wellington 0.36% 0.94% NO -20.5% -1.5% 2.8%
13 ABALX American Funds American Balanced A 0.67% 2.72% YES -22.6% -4.3% -0.1%
94 BALCX American Funds American Balanced C 1.48% 7.06% NO -23.2% -5.1% -0.9%
57 ACEIX Van Kampen Equity and Income A 0.83% 3.32% YES -23.3% -5.0% 0.9%
35 FASMX Fidelity Asset Manager 50% 0.73% 2.38% NO -24.3% -5.6% -1.5%
15 FPURX Fidelity Puritan 0.64% 2.80% NO -25.9% -5.2% -0.3%
32 AMRMX American Funds American Mutual A 0.62% 3.01% YES -26.0% -6.0% -0.5%
18 VPMCX Vanguard PRIMECAP 0.46% 1.69% NO -26.8% -5.7% 1.7%
62 OAKMX Oakmark I 1.05% 3.75% NO -26.8% -8.4% -2.9%
41 HADAX Hartford Advisers HLS IA 0.67% 2.81% NO -27.6% -7.0% -1.9%
10 CAIBX American Funds Capital Inc Bldr A 0.65% 1.35% YES -28.5% -2.5% 2.9%
44 FFFDX Fidelity Freedom 2020 0.75% 4.16% NO -28.5% -6.7% -0.7%
78 PIODX Pioneer A 1.09% 6.26% YES -29.3% -7.5% -1.0%
92 NBGEX Neuberger Berman Genesis Tr 1.10% 3.43% NO -29.5% -5.2% 3.8%
96 HIADX Hartford Dividend & Growth HLS IA 0.69% 3.09% NO -29.7% -4.8% 0.9%
70 DFSVX DFA U.S. Small Cap Value I 0.56% 2.32% NO -29.9% -12.3% -2.0%
21 DODBX Dodge & Cox Balanced 0.54% 1.52% NO -29.9% -8.3% -1.3%
75 OAKLX Oakmark Select I 1.00% 2.81% NO -30.0% -14.7% -6.1%
3 AWSHX American Funds Washington Mutual A 0.64% 3.72% YES -30.0% -7.2% -1.6%
51 PVOYX Putnam Voyager A 1.04% 6.92% YES -30.2% -11.3% -4.9%
95 RYLPX Royce Low-Priced Stock Svc 1.49% 6.19% NO -30.3% -8.2% -0.7%
76 ACGIX Van Kampen Growth and Income A 0.86% 4.09% YES -30.5% -7.9% -0.1%
61 MSIQX Morgan Stanley Inst International Eq I 1.00% 3.81% NO -30.6% -4.4% 2.7%
7 FLPSX Fidelity Low-Priced Stock 0.97% 3.41% NO -31.2% -8.6% 0.6%
1 AIVSX American Funds Invmt Co of Amer A 0.59% 2.81% YES -31.2% -7.6% -1.3%
25 PRFDX T. Rowe Price Equity Income 0.78% 4.08% NO -31.8% -8.1% -1.2%
80 MIGFX MFS Massachusetts Investors Gr Stk A 0.95% 4.22% YES -31.9% -9.2% -3.0%
30 AMCPX American Funds Amcap A 0.73% 3.03% YES -32.4% -9.9% -2.9%
66 HACAX Harbor Capital Appreciation Instl 0.67% 2.73% NO -32.4% -10.9% -2.2%
72 PRNHX T. Rowe Price New Horizons 0.91% 4.14% NO -32.8% -11.6% -1.8%
48 ACRNX Columbia Acorn Z 0.80% 4.21% NO -32.9% -9.2% 0.6%
81 VWNAX Vanguard Windsor II Adm 0.25% 0.47% NO -32.9% -9.0% -0.6%
11 VWNFX Vanguard Windsor II 0.36% 1.06% NO -33.0% -9.1% -0.7%
83 FFFEX Fidelity Freedom 2030 0.77% 5.11% NO -33.0% -8.6% -1.4%
31 RPMGX T. Rowe Price Mid-Cap Growth 0.87% 3.57% NO -33.1% -8.8% 0.8%
39 ACSTX Van Kampen Comstock A 0.90% 3.45% YES -33.3% -10.7% -2.6%
84 VWUSX Vanguard U.S. Growth 0.53% 1.84% NO -33.5% -12.1% -4.0%
67 FDCAX Fidelity Capital Appreciation 0.88% 3.07% NO -33.5% -10.3% -2.8%
99 FRESX Fidelity Real Estate Investment 0.83% 6.70% NO -33.8% -15.8% -0.8%
69 DIVBX Morgan Stanley Dividend Growth Secs B 1.28% 6.57% NO -33.8% -10.7% -3.6%
68 VQNPX Vanguard Growth & Income 0.42% 3.11% NO -33.8% -10.6% -3.2%
6 FCNTX Fidelity Contrafund 0.98% 2.70% NO -34.0% -6.8% 2.1%
16 FBGRX Fidelity Blue Chip Growth 0.67% 5.35% NO -34.1% -10.6% -4.4%
91 PNOPX Putnam New Opportunities A 1.09% 6.97% YES -34.2% -11.7% -3.4%
27 LAFFX Lord Abbett Affiliated A 0.84% 4.48% YES -34.5% -9.6% -2.8%
49 GFAFX American Funds Grth Fund of Amer F 0.72% 2.98% NO -34.6% -9.4% -0.8%
4 AGTHX American Funds Grth Fund of Amer A 0.70% 2.88% YES -34.6% -9.4% -0.8%
52 VEXPX Vanguard Explorer 0.72% 5.40% NO -34.7% -12.5% -3.6%
33 PGRWX Putnam Fund for Growth & Income A 0.90% 5.80% YES -34.8% -13.5% -5.2%
82 GFACX American Funds Grth Fund of Amer C 1.50% 6.84% NO -35.1% -10.1% -1.6%
28 JANSX Janus 0.90% 2.93% NO -35.4% -8.9% -3.6%
20 ANCFX American Funds Fundamental Invs A 0.66% 2.67% YES -35.5% -6.8% 0.9%
98 OAKIX Oakmark International I 1.20% 3.73% NO -36.0% -9.0% 0.8%
58 FRSGX Franklin Small-Mid Cap Growth A 0.98% 5.13% YES -36.3% -11.7% -3.0%
24 VWNDX Vanguard Windsor 0.39% 1.75% NO -36.5% -12.5% -4.1%
54 PRGFX T. Rowe Price Growth Stock 0.76% 5.03% NO -37.2% -10.1% -2.9%
36 FFIDX Fidelity 0.59% 3.46% NO -37.2% -8.3% -1.9%
14 FEQIX Fidelity Equity-Income 0.70% 4.20% NO -37.3% -11.5% -3.7%
63 ANEFX American Funds New Economy A 0.89% 3.59% YES -37.4% -10.0% -1.5%
29 FEQTX Fidelity Equity-Income II 0.64% 2.89% NO -37.5% -12.1% -4.6%
19 TWCUX American Century Ultra Inv 1.00% 3.88% NO -37.8% -12.2% -5.0%
22 FDGFX Fidelity Dividend Growth 0.89% 3.70% NO -37.9% -12.7% -5.9%
77 HSTAX Hartford Stock HLS IA 0.49% 2.25% NO -37.9% -11.8% -4.4%
60 TRBCX T. Rowe Price Blue Chip Growth 0.95% 6.55% NO -38.0% -11.1% -3.8%
8 AEPGX American Funds EuroPacific Gr A 0.87% 3.61% YES -38.0% -5.9% 4.2%
73 CSTGX AIM Constellation A 1.29% 5.08% YES -38.7% -13.1% -5.1%
50 HAINX Harbor International Instl 0.86% 2.86% NO -39.2% -3.6% 5.5%
86 FDETX Fidelity Advisor Capital Development O 0.55% 1.80% YES -40.1% -10.4% -3.7%
40 FDVLX Fidelity Value 0.98% 4.16% NO -40.2% -14.3% -2.5%
74 TFEQX Templeton Instl Foreign Equity 0.83% 3.10% NO -40.5% -5.0% 3.9%
71 OPTFX Oppenheimer Capital Appreciation A 1.09% 5.70% YES -40.5% -13.1% -5.8%
45 FMCSX Fidelity Mid-Cap Stock 0.65% 2.92% NO -40.6% -13.0% -3.2%
37 HIACX Hartford Capital Appreciation HLS IA 0.69% 2.41% NO -40.6% -9.7% 0.7%
56 VWIGX Vanguard International Growth 0.45% 1.36% NO -41.6% -8.0% 1.6%
87 JIEIX Artio International Equity I 1.02% 3.28% NO -41.8% -5.7% 4.4%
93 BJBIX Artio International Equity A 1.31% 4.49% NO -41.9% -5.9% 4.2%
17 FDIVX Fidelity Diversified International 1.22% 5.19% NO -42.2% -9.2% 1.4%
26 TEMFX Templeton Foreign A 1.23% 4.58% YES -42.9% -9.3% -0.0%
53 LLPFX Longleaf Partners 0.91% 2.11% NO -42.9% -14.3% -7.0%
90 FAEGX Fidelity Advisor Equity Growth T 1.32% 6.20% YES -43.4% -11.6% -5.8%
65 ARTIX Artisan International Inv 1.22% 4.61% NO -43.8% -8.2% 1.4%
97 FOSFX Fidelity Overseas 1.00% 3.73% NO -44.1% -9.2% 0.3%
2 FMAGX Fidelity Magellan 0.70% 5.87% NO -44.4% -13.9% -5.7%
88 PRITX T. Rowe Price International Stock 0.92% 5.33% NO -44.5% -11.7% -1.5%
42 CVGRX Calamos Growth A 1.31% 3.74% YES -44.7% -15.1% -4.4%
85 SNIVX Bernstein Tax-Managed Intl Port 1.24% 4.20% NO -45.6% -12.7% -1.7%
9 FGRIX Fidelity Growth & Income 0.69% 2.91% NO -46.1% -18.4% -9.0%
38 SMCWX American Funds Smallcap World A 1.12% 4.87% YES -46.5% -10.9% -0.4%
100 GTVLX AIM Basic Value A 1.34% 5.50% YES -46.6% -17.7% -7.9%
34 LMVTX Legg Mason Value Prim 1.70% 5.90% NO -49.2% -23.3% -11.5%
Data updated as of: January 8, 2009
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