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