|  | | 2004 News and Press Releases | | |
HEADLINE NEWS:
Study: Real Costs Of Mutual Funds Hidden
Associated Press. November 23, 2004
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EXCERPT: Mutual fund investors are paying billions of dollars in portfolio trading costs that are hidden from view, according to a new study. Stock mutual funds incur some $17.3 billion in costs that don't show up in expense ratios, according to a survey of over 5,000 equity funds published last week by the Zero Alpha Group, a group of eight independent investment advisory firms that manage a total of about $3 billion. On average, trading costs of the surveyed mutual funds were 44 percent of their reported expense ratios, according to the study. The expense ratio is the fund's cost of doing business, as disclosed in its prospectus and expressed as a percentage of its assets, but doesn't include trading costs. One of the starkest findings: There is a huge gap between trading costs for index funds and actively managed funds. Active funds racked up about 0.48 percent in trading costs per year, compared with 0.064 percent per year for index funds. "That investors in actively managed funds incur portfolio trading costs that are over seven times that of index fund investors is another in the long line of reasons for investors to favor index funds," said Edward O'Neal, assistant professor of finance at the Wake Forest University of Grade School of Management, in a statement. |
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