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