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Trading cost?

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Sep 23, 2005 2:35 am

Does a fund's expense ratio reflect the trading cost that was generated within the fund ?

For example: 1 year return NAV = 10.00 %

                    Expens e Ratio      = -1.25 %

       Net Return before taxes    = 8.75 %

       Less trading cost ???????   = ??????

 Thanks

Sep 23, 2005 3:30 am

Da Bears,

I believe the answer is no. As strange as it may sound..total expense ratio does NOT include the trading costs. Trading costs can easily exceed 1%. Even for low cost funds like American Funds.

DT

Sep 23, 2005 3:42 pm

Also, you never see the expense ratio come out cause it comes out at the end of every day, so a 1 year return of 10% at NAV means you made 10% after all expenses, which you are correct are certainly just not the expense ratio b/c as double says the trading costs can be significant.

Sep 23, 2005 3:55 pm

No, trading costs are an embedded, “hidden” fee that mutual fund companies, in this environment presently, are NOT required to disclose. Our firm recently hosted an expert forum that delat somewhat with this issue, and the average euity fund has trading costs ranging from 2.5-3% year. This is obviously dependent on turnover, and is a subject that our experts feel will be the next bombshell to be dropped.

Sep 23, 2005 5:42 pm

Mutual funds have SO many flaws once you really dig deep into them.  They're an easy answer for small time investors, and beyond that I'd like to weed them out of my business.

Sep 23, 2005 5:59 pm

[quote=da bears]

Does a fund's expense ratio reflect the trading cost that was generated within the fund ?

For example: 1 year return NAV = 10.00 %

                    Expens e Ratio      = -1.25 %

       Net Return before taxes    = 8.75 %

       Less trading cost ???????   = ??????

 Thanks

[/quote]

As others have pointed out, no, they don't. John Bogle (and he has his own axe to grind) says if you want to know real trading costs in a fund take the turn-over ratio and multiply it by 6 bps, then add that to the known exp ratio to get a handle on the real cost.

Sep 25, 2005 1:43 pm

Personalfund.com will give you info on trading costs. It is worthy to know and be prepared to defend. The next issue to be dealt with in the world of (non) disclosure.

Sep 26, 2005 9:07 pm

Look at Dimensional funds they have negative trading costs on several of there funds! That is just one of the selling points plus many more for these funds! The more I use these the more I like them!

Sep 27, 2005 2:40 am

7 year, thanks for the link. According to personalfund.com the trading cost they use is only an estimate by using the turnover ratio to calculate an approximate cost based on averages. Is there a way to find out the actual cost ? Does the fund companies HAVE to provide it ? Just curious