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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
13 ABALX American Funds American Balanced A 0.67% 2.72% YES -22.0% -3.9% 0.2%
57 ACEIX Van Kampen Equity and Income A 0.83% 3.32% YES -22.4% -4.6% 1.2%
76 ACGIX Van Kampen Growth and Income A 0.86% 4.09% YES -29.0% -7.2% 0.4%
48 ACRNX Columbia Acorn Z 0.80% 4.21% NO -32.9% -8.5% 1.3%
39 ACSTX Van Kampen Comstock A 0.90% 3.45% YES -31.9% -9.9% -2.0%
8 AEPGX American Funds EuroPacific Gr A 0.87% 3.61% YES -37.5% -5.6% 4.5%
4 AGTHX American Funds Grth Fund of Amer A 0.70% 2.88% YES -34.1% -8.8% -0.2%
1 AIVSX American Funds Invmt Co of Amer A 0.59% 2.81% YES -30.6% -7.0% -0.8%
30 AMCPX American Funds Amcap A 0.73% 3.03% YES -32.0% -9.3% -2.3%
32 AMRMX American Funds American Mutual A 0.62% 3.01% YES -25.3% -5.4% -0.0%
20 ANCFX American Funds Fundamental Invs A 0.66% 2.67% YES -35.1% -6.2% 1.4%
63 ANEFX American Funds New Economy A 0.89% 3.59% YES -36.6% -9.3% -0.8%
65 ARTIX Artisan International Inv 1.22% 4.61% NO -43.5% -7.7% 1.9%
3 AWSHX American Funds Washington Mutual A 0.64% 3.72% YES -29.1% -6.4% -1.0%
94 BALCX American Funds American Balanced C 1.48% 7.06% NO -22.7% -4.6% -0.6%
93 BJBIX Artio International Equity A 1.31% 4.49% NO -41.8% -5.7% 4.4%
10 CAIBX American Funds Capital Inc Bldr A 0.65% 1.35% YES -28.2% -2.3% 3.1%
73 CSTGX AIM Constellation A 1.29% 5.08% YES -39.1% -12.6% -4.6%
42 CVGRX Calamos Growth A 1.31% 3.74% YES -44.8% -14.3% -3.6%
70 DFSVX DFA U.S. Small Cap Value I 0.56% 2.32% NO -30.0% -11.6% -1.2%
69 DIVBX Morgan Stanley Dividend Growth Secs B 1.28% 6.57% NO -32.9% -9.9% -3.1%
21 DODBX Dodge & Cox Balanced 0.54% 1.52% NO -29.4% -7.9% -0.9%
59 DODIX Dodge & Cox Income 0.45% 1.36% NO 0.2% 3.4% 3.2%
90 FAEGX Fidelity Advisor Equity Growth T 1.32% 6.20% YES -43.2% -10.9% -5.0%
35 FASMX Fidelity Asset Manager 50% 0.73% 2.38% NO -24.3% -5.3% -1.2%
16 FBGRX Fidelity Blue Chip Growth 0.67% 5.35% NO -33.1% -9.8% -3.7%
6 FCNTX Fidelity Contrafund 0.98% 2.70% NO -33.8% -6.2% 2.5%
67 FDCAX Fidelity Capital Appreciation 0.88% 3.07% NO -35.1% -10.2% -2.5%
86 FDETX Fidelity Advisor Capital Development O 0.55% 1.80% YES -39.5% -9.6% -3.0%
22 FDGFX Fidelity Dividend Growth 0.89% 3.70% NO -37.0% -12.0% -5.3%
17 FDIVX Fidelity Diversified International 1.22% 5.19% NO -42.5% -9.0% 1.6%
40 FDVLX Fidelity Value 0.98% 4.16% NO -39.7% -13.3% -1.6%
14 FEQIX Fidelity Equity-Income 0.70% 4.20% NO -36.8% -10.7% -3.0%
29 FEQTX Fidelity Equity-Income II 0.64% 2.89% NO -36.6% -11.1% -3.8%
44 FFFDX Fidelity Freedom 2020 0.75% 4.16% NO -28.4% -6.3% -0.3%
83 FFFEX Fidelity Freedom 2030 0.77% 5.11% NO -32.8% -8.0% -0.9%
36 FFIDX Fidelity 0.59% 3.46% NO -36.3% -7.4% -1.1%
9 FGRIX Fidelity Growth & Income 0.69% 2.91% NO -45.9% -17.7% -8.4%
7 FLPSX Fidelity Low-Priced Stock 0.97% 3.41% NO -31.2% -8.1% 1.0%
2 FMAGX Fidelity Magellan 0.70% 5.87% NO -44.1% -13.1% -5.0%
45 FMCSX Fidelity Mid-Cap Stock 0.65% 2.92% NO -40.8% -12.4% -2.6%
97 FOSFX Fidelity Overseas 1.00% 3.73% NO -44.5% -8.8% 0.7%
15 FPURX Fidelity Puritan 0.64% 2.80% NO -25.6% -4.7% 0.1%
99 FRESX Fidelity Real Estate Investment 0.83% 6.70% NO -32.3% -14.4% 0.1%
58 FRSGX Franklin Small-Mid Cap Growth A 0.98% 5.13% YES -36.3% -10.9% -2.2%
82 GFACX American Funds Grth Fund of Amer C 1.50% 6.84% NO -34.6% -9.5% -1.0%
49 GFAFX American Funds Grth Fund of Amer F 0.72% 2.98% NO -34.1% -8.8% -0.2%
100 GTVLX AIM Basic Value A 1.34% 5.50% YES -46.0% -16.9% -7.4%
66 HACAX Harbor Capital Appreciation Instl 0.67% 2.73% NO -32.4% -10.5% -1.7%
41 HADAX Hartford Advisers HLS IA 0.67% 2.81% NO -27.5% -6.5% -1.6%
50 HAINX Harbor International Instl 0.86% 2.86% NO -38.4% -3.0% 6.0%
37 HIACX Hartford Capital Appreciation HLS IA 0.69% 2.41% NO -40.2% -9.0% 1.2%
96 HIADX Hartford Dividend & Growth HLS IA 0.69% 3.09% NO -28.5% -4.0% 1.4%
77 HSTAX Hartford Stock HLS IA 0.49% 2.25% NO -37.6% -11.1% -3.9%
28 JANSX Janus 0.90% 2.93% NO -35.0% -8.3% -3.0%
87 JIEIX Artio International Equity I 1.02% 3.28% NO -41.6% -5.5% 4.7%
27 LAFFX Lord Abbett Affiliated A 0.84% 4.48% YES -33.1% -8.6% -2.0%
53 LLPFX Longleaf Partners 0.91% 2.11% NO -43.9% -14.3% -6.8%
34 LMVTX Legg Mason Value Prim 1.70% 5.90% NO -49.6% -22.9% -11.2%
80 MIGFX MFS Massachusetts Investors Gr Stk A 0.95% 4.22% YES -31.2% -8.6% -2.4%
64 MSFRX MFS Total Return A 0.89% 3.08% YES -19.9% -3.4% 1.1%
61 MSIQX Morgan Stanley Inst International Eq I 1.00% 3.81% NO -30.1% -4.2% 2.8%
92 NBGEX Neuberger Berman Genesis Tr 1.10% 3.43% NO -28.7% -4.4% 4.5%
55 OAKBX Oakmark Equity & Income I 0.92% 2.63% NO -13.4% 1.7% 5.0%
98 OAKIX Oakmark International I 1.20% 3.73% NO -36.7% -9.0% 0.8%
75 OAKLX Oakmark Select I 1.00% 2.81% NO -28.9% -13.8% -5.7%
62 OAKMX Oakmark I 1.05% 3.75% NO -25.4% -7.5% -2.4%
71 OPTFX Oppenheimer Capital Appreciation A 1.09% 5.70% YES -40.8% -12.5% -5.2%
33 PGRWX Putnam Fund for Growth & Income A 0.90% 5.80% YES -34.5% -12.7% -4.6%
78 PIODX Pioneer A 1.09% 6.26% YES -28.6% -6.7% -0.5%
91 PNOPX Putnam New Opportunities A 1.09% 6.97% YES -33.7% -11.0% -2.7%
25 PRFDX T. Rowe Price Equity Income 0.78% 4.08% NO -30.8% -7.2% -0.5%
54 PRGFX T. Rowe Price Growth Stock 0.76% 5.03% NO -37.0% -9.5% -2.4%
88 PRITX T. Rowe Price International Stock 0.92% 5.33% NO -44.1% -11.2% -1.1%
72 PRNHX T. Rowe Price New Horizons 0.91% 4.14% NO -32.2% -11.0% -1.1%
43 PTLDX PIMCO Low Duration Instl 0.43% 1.22% NO -0.8% 3.7% 3.0%
23 PTRAX PIMCO Total Return Admin 0.68% 3.69% NO 4.5% 6.0% 5.1%
47 PTTAX PIMCO Total Return A 0.90% 4.77% YES 4.3% 5.8% 4.9%
5 PTTRX PIMCO Total Return Instl 0.43% 2.31% NO 4.8% 6.2% 5.4%
51 PVOYX Putnam Voyager A 1.04% 6.92% YES -30.3% -10.7% -4.3%
31 RPMGX T. Rowe Price Mid-Cap Growth 0.87% 3.57% NO -32.7% -7.9% 1.4%
95 RYLPX Royce Low-Priced Stock Svc 1.49% 6.19% NO -29.8% -7.5% -0.1%
38 SMCWX American Funds Smallcap World A 1.12% 4.87% YES -46.3% -10.3% 0.2%
85 SNIVX Bernstein Tax-Managed Intl Port 1.24% 4.20% NO -46.0% -12.8% -1.7%
26 TEMFX Templeton Foreign A 1.23% 4.58% YES -41.8% -8.7% 0.3%
74 TFEQX Templeton Instl Foreign Equity 0.83% 3.10% NO -38.9% -4.4% 4.2%
60 TRBCX T. Rowe Price Blue Chip Growth 0.95% 6.55% NO -37.6% -10.4% -3.2%
19 TWCUX American Century Ultra Inv 1.00% 3.88% NO -37.4% -11.5% -4.5%
52 VEXPX Vanguard Explorer 0.72% 5.40% NO -35.0% -11.8% -2.9%
18 VPMCX Vanguard PRIMECAP 0.46% 1.69% NO -26.6% -5.3% 2.2%
68 VQNPX Vanguard Growth & Income 0.42% 3.11% NO -33.1% -9.8% -2.5%
12 VWELX Vanguard Wellington 0.36% 0.94% NO -20.1% -1.2% 3.0%
79 VWENX Vanguard Wellington Adm 0.23% 0.34% NO -19.9% -1.0% 3.1%
56 VWIGX Vanguard International Growth 0.45% 1.36% NO -41.1% -7.5% 2.1%
81 VWNAX Vanguard Windsor II Adm 0.25% 0.47% NO -32.2% -8.3% -0.1%
24 VWNDX Vanguard Windsor 0.39% 1.75% NO -35.9% -11.8% -3.6%
11 VWNFX Vanguard Windsor II 0.36% 1.06% NO -32.3% -8.4% -0.2%
84 VWUSX Vanguard U.S. Growth 0.53% 1.84% NO -33.3% -11.6% -3.3%
89 WOBDX JPMorgan Core Bond Select 0.60% 2.70% NO 2.8% 4.9% 4.3%
Data updated as of: January 6, 2009
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