Ken Roberts

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March 24, 2014
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Market Beat: Understanding mutual fund fees

Investors need to be aware of the fees that they pay for their investments. High fees can be a real drag on long-term investment performance. If you purchase an individual stock, you’ll pay a commission when you buy and another commission when you sell it, but there is no ongoing expense for holding the stock.

Mutual funds are different. They have an expense ratio. Typically, managed funds are more expensive than passive, or index funds. It’s very important to check the fee structure of a fund before purchasing it and to check the expenses of your current mutual fund holdings if any.

Managed funds can have several different share classes with different fee structures. I recently analyzed a fund that invests in the financial services sector. The fund has four different pricing structures. They have a class “A” share that charges a 5.5 percent front end load, a 1.33 percent annual fee and also a 1 percent back end load.

They also offer a class “B” share that has no front end load and a 2.03 percent annual, but has a back end load that starts at 5 percent. Their class “C” share has no front end charge, an annual fee of 2.03 percent and a 1 percent back end load also known as a deferred sales charge.

They also offer an institutional class share for larger investors with no loads, but it has a 1.03 percent annual fee. In the last year this particular fund had a gain of 8.48 percent after fees. If you compare that to the financial services Spyder, which is a passive exchange traded fund that represents the financial services sector, the ETF has an expense ratio of just 0.19 percent and was up over 22 percent in the last year.

Because it’s an ETF, you will pay the broker a commission when you buy and sell, but at a typical discount brokerage, the cost is usually under $10 per trade.

Sometimes you may have to read the fine print in the fund prospectus to know what you are actually paying. Additionally, there are several good sources online where you can type in the ticker symbol of your fund and get the expense and performance information.

Check your funds and make sure that you get what you are paying for, both in terms of performance and the service you are getting on your account.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information on his money management service can be found at his blog at www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.


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Tahoe Daily Tribune Updated Mar 25, 2014 06:43PM Published Mar 24, 2014 08:36PM Copyright 2014 Tahoe Daily Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.