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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 1.4% 5.0% 4.6%
87 JIEIX Artio International Equity I 1.02% 3.28% NO -48.2% -5.9% 4.4%
50 HAINX Harbor International Instl 0.86% 2.86% NO -50.0% -5.5% 4.4%
23 PTRAX PIMCO Total Return Admin 0.68% 3.69% NO 1.1% 4.8% 4.4%
89 WOBDX JPMorgan Core Bond Select 0.60% 2.70% NO N/A% 4.8% 4.3%
55 OAKBX Oakmark Equity & Income I 0.92% 2.63% NO -19.5% 0.3% 4.2%
62 OAKMX Oakmark I 1.05% 3.75% NO -41.2% -11.8% -4.7%
93 BJBIX Artio International Equity A 1.31% 4.49% NO -48.4% -6.2% 4.1%
99 FRESX Fidelity Real Estate Investment 0.83% 6.70% NO -55.7% -20.8% -4.8%
74 TFEQX Templeton Instl Foreign Equity 0.83% 3.10% NO -47.5% -6.1% 3.1%
92 NBGEX Neuberger Berman Genesis Tr 1.10% 3.43% NO -35.6% -6.8% 2.6%
16 FBGRX Fidelity Blue Chip Growth 0.67% 5.35% NO -42.4% -12.6% -5.0%
79 VWENX Vanguard Wellington Adm 0.23% 0.34% NO -27.7% -3.3% 2.4%
43 PTLDX PIMCO Low Duration Instl 0.43% 1.22% NO -3.9% 2.5% 2.3%
12 VWELX Vanguard Wellington 0.36% 0.94% NO -27.8% -3.4% 2.2%
59 DODIX Dodge & Cox Income 0.45% 1.36% NO -5.4% 1.6% 2.2%
61 MSIQX Morgan Stanley Inst International Eq I 1.00% 3.81% NO -41.8% -6.7% 1.5%
6 FCNTX Fidelity Contrafund 0.98% 2.70% NO -41.0% -7.9% 1.3%
52 VEXPX Vanguard Explorer 0.72% 5.40% NO -46.6% -15.2% -5.2%
18 VPMCX Vanguard PRIMECAP 0.46% 1.69% NO -37.7% -7.8% 0.5%
56 VWIGX Vanguard International Growth 0.45% 1.36% NO -52.1% -9.6% 0.5%
28 JANSX Janus 0.90% 2.93% NO -46.0% -12.2% -5.2%
96 HIADX Hartford Dividend & Growth HLS IA 0.69% 3.09% NO -37.8% -7.0% 0.4%
24 VWNDX Vanguard Windsor 0.39% 1.75% NO -48.0% -14.9% -5.3%
65 ARTIX Artisan International Inv 1.22% 4.61% NO -53.6% -9.8% 0.4%
17 FDIVX Fidelity Diversified International 1.22% 5.19% NO -52.0% -10.7% 0.4%
98 OAKIX Oakmark International I 1.20% 3.73% NO -46.2% -10.2% 0.3%
37 HIACX Hartford Capital Appreciation HLS IA 0.69% 2.41% NO -50.4% -12.0% -0.2%
77 HSTAX Hartford Stock HLS IA 0.49% 2.25% NO -48.8% -14.3% -5.4%
15 FPURX Fidelity Puritan 0.64% 2.80% NO -32.8% -6.5% -0.4%
45 FMCSX Fidelity Mid-Cap Stock 0.65% 2.92% NO -52.1% -16.0% -5.6%
97 FOSFX Fidelity Overseas 1.00% 3.73% NO -53.8% -10.5% -0.4%
19 TWCUX American Century Ultra Inv 1.00% 3.88% NO -45.0% -14.5% -6.0%
48 ACRNX Columbia Acorn Z 0.80% 4.21% NO -45.0% -12.3% -1.0%
81 VWNAX Vanguard Windsor II Adm 0.25% 0.47% NO -43.0% -11.0% -1.0%
2 FMAGX Fidelity Magellan 0.70% 5.87% NO -54.5% -16.7% -7.2%
11 VWNFX Vanguard Windsor II 0.36% 1.06% NO -43.0% -11.1% -1.1%
94 BALCX American Funds American Balanced C 1.48% 7.06% NO -30.4% -6.5% -1.2%
25 PRFDX T. Rowe Price Equity Income 0.78% 4.08% NO -40.2% -9.8% -1.2%
22 FDGFX Fidelity Dividend Growth 0.89% 3.70% NO -50.1% -16.3% -7.4%
44 FFFDX Fidelity Freedom 2020 0.75% 4.16% NO -36.7% -8.3% -1.4%
75 OAKLX Oakmark Select I 1.00% 2.81% NO -47.0% -18.4% -8.7%
7 FLPSX Fidelity Low-Priced Stock 0.97% 3.41% NO -43.5% -11.9% -1.4%
49 GFAFX American Funds Grth Fund of Amer F 0.72% 2.98% NO -43.2% -11.0% -1.5%
53 LLPFX Longleaf Partners 0.91% 2.11% NO -58.1% -19.5% -9.7%
31 RPMGX T. Rowe Price Mid-Cap Growth 0.87% 3.57% NO -46.0% -12.2% -1.5%
9 FGRIX Fidelity Growth & Income 0.69% 2.91% NO -55.7% -21.1% -10.0%
34 LMVTX Legg Mason Value Prim 1.70% 5.90% NO -60.9% -26.8% -13.3%
36 FFIDX Fidelity 0.59% 3.46% NO -44.0% -9.7% -2.1%
83 FFFEX Fidelity Freedom 2030 0.77% 5.11% NO -41.8% -10.3% -2.2%
21 DODBX Dodge & Cox Balanced 0.54% 1.52% NO -39.4% -10.5% -2.2%
35 FASMX Fidelity Asset Manager 50% 0.73% 2.38% NO -32.3% -7.5% -2.2%
82 GFACX American Funds Grth Fund of Amer C 1.50% 6.84% NO -43.6% -11.7% -2.2%
85 SNIVX Bernstein Tax-Managed Intl Port 1.24% 4.20% NO -54.9% -13.9% -2.7%
88 PRITX T. Rowe Price International Stock 0.92% 5.33% NO -54.5% -13.4% -2.7%
41 HADAX Hartford Advisers HLS IA 0.67% 2.81% NO -36.8% -9.0% -2.8%
66 HACAX Harbor Capital Appreciation Instl 0.67% 2.73% NO -41.6% -12.8% -2.8%
70 DFSVX DFA U.S. Small Cap Value I 0.56% 2.32% NO -44.5% -15.6% -3.1%
68 VQNPX Vanguard Growth & Income 0.42% 3.11% NO -42.8% -12.7% -3.7%
14 FEQIX Fidelity Equity-Income 0.70% 4.20% NO -46.4% -13.3% -3.8%
54 PRGFX T. Rowe Price Growth Stock 0.76% 5.03% NO -46.9% -12.9% -3.9%
95 RYLPX Royce Low-Priced Stock Svc 1.49% 6.19% NO -45.5% -13.0% -3.9%
40 FDVLX Fidelity Value 0.98% 4.16% NO -53.0% -17.4% -4.0%
72 PRNHX T. Rowe Price New Horizons 0.91% 4.14% NO -45.9% -15.3% -4.1%
84 VWUSX Vanguard U.S. Growth 0.53% 1.84% NO -41.5% -13.6% -4.3%
67 FDCAX Fidelity Capital Appreciation 0.88% 3.07% NO -48.5% -13.3% -4.3%
29 FEQTX Fidelity Equity-Income II 0.64% 2.89% NO -44.7% -13.1% -4.3%
69 DIVBX Morgan Stanley Dividend Growth Secs B 1.28% 6.57% NO -42.7% -13.0% -4.4%
60 TRBCX T. Rowe Price Blue Chip Growth 0.95% 6.55% NO -47.2% -13.6% -4.6%
47 PTTAX PIMCO Total Return A 0.90% 4.77% YES 0.9% 4.5% 4.2%
8 AEPGX American Funds EuroPacific Gr A 0.87% 3.61% YES -47.0% -7.0% 3.3%
10 CAIBX American Funds Capital Inc Bldr A 0.65% 1.35% YES -35.2% -3.7% 2.6%
57 ACEIX Van Kampen Equity and Income A 0.83% 3.32% YES -30.2% -6.3% 0.6%
64 MSFRX MFS Total Return A 0.89% 3.08% YES -27.2% -5.1% 0.5%
20 ANCFX American Funds Fundamental Invs A 0.66% 2.67% YES -43.9% -8.7% 0.4%
76 ACGIX Van Kampen Growth and Income A 0.86% 4.09% YES -38.3% -9.4% -0.3%
13 ABALX American Funds American Balanced A 0.67% 2.72% YES -29.8% -5.8% -0.4%
32 AMRMX American Funds American Mutual A 0.62% 3.01% YES -34.4% -7.6% -0.7%
78 PIODX Pioneer A 1.09% 6.26% YES -38.0% -8.7% -1.0%
26 TEMFX Templeton Foreign A 1.23% 4.58% YES -50.3% -10.8% -1.2%
1 AIVSX American Funds Invmt Co of Amer A 0.59% 2.81% YES -39.0% -8.9% -1.4%
4 AGTHX American Funds Grth Fund of Amer A 0.70% 2.88% YES -43.2% -11.0% -1.5%
3 AWSHX American Funds Washington Mutual A 0.64% 3.72% YES -37.5% -8.4% -1.5%
38 SMCWX American Funds Smallcap World A 1.12% 4.87% YES -54.2% -12.4% -1.6%
58 FRSGX Franklin Small-Mid Cap Growth A 0.98% 5.13% YES -46.2% -13.9% -4.0%
86 FDETX Fidelity Advisor Capital Development O 0.55% 1.80% YES -47.0% -11.8% -3.8%
73 CSTGX AIM Constellation A 1.29% 5.08% YES -47.0% -14.5% -5.8%
90 FAEGX Fidelity Advisor Equity Growth T 1.32% 6.20% YES -50.0% -13.1% -5.9%
63 ANEFX American Funds New Economy A 0.89% 3.59% YES -46.9% -11.5% -2.2%
42 CVGRX Calamos Growth A 1.31% 3.74% YES -54.5% -17.3% -6.3%
51 PVOYX Putnam Voyager A 1.04% 6.92% YES -42.8% -14.8% -6.7%
71 OPTFX Oppenheimer Capital Appreciation A 1.09% 5.70% YES -50.6% -15.9% -7.0%
91 PNOPX Putnam New Opportunities A 1.09% 6.97% YES -43.5% -13.8% -4.8%
27 LAFFX Lord Abbett Affiliated A 0.84% 4.48% YES -43.5% -11.5% -3.2%
30 AMCPX American Funds Amcap A 0.73% 3.03% YES -41.9% -12.1% -3.9%
100 GTVLX AIM Basic Value A 1.34% 5.50% YES -56.4% -20.3% -9.2%
39 ACSTX Van Kampen Comstock A 0.90% 3.45% YES -43.4% -12.6% -2.8%
33 PGRWX Putnam Fund for Growth & Income A 0.90% 5.80% YES -44.0% -14.8% -5.3%
80 MIGFX MFS Massachusetts Investors Gr Stk A 0.95% 4.22% YES -41.7% -11.4% -3.9%
Data updated as of: December 2, 2008
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