The low-cost investing revolution continues to deliver. With investors gravitating to cheaper passive funds, asset-weighted average expense ratios across mutual funds have come down.
AllianzGI Technology (DRGTX) took its fees down 15 basis points to 1.17%. FMI Common Stock (FMIMX) slashed 8 basis points off of its expense ratio and now charges 1.04%. Schwab Fundamental U.S. Large Company Index (SFLNX) reduced its expense ratio by 10 basis points to 0.25%. Vanguard Windsor (VWNDX) now costs 0.30% annually, down from 0.39%. Vanguard Mid Cap Growth (VMGRX) reduced its fees by 7 basis points to 0.36%. All of those funds have average to low expense ratios for their respective categories.
The only exception is Ariel International (AINTX). It reduced fees by 12 basis points or 0.12%, now charging 1.13% for retail investors and 0.88% for institutional. However, its fees, above the Morningstar category average of 1.10%. That said, it is the best-performing fund of the six funds so far this year, returning 15% after fees.
To be fair to the other funds, this is really an apple-to-kiwi performance comparison, because these funds use different investment strategies.
Todd Rosenbluth, director of ETF and mutual fund research at CFRA, in a report published this morning advised investors to look beyond performance. He wrote:
The average investor has heard the message so often that they can finish the sentence for us: past performance is not indicative of… CFRA’s fund research puts this warning into practice, by focusing on costs and holdings. Yet, for those that still plow ahead chasing prior winners, semi-annual research from S&P Dow Jones Indices serves as a cautionary tale.
For the three years ended March 2017, the persistence scorecard showed that just 23% of large-cap funds, 11% of mid-cap funds and 22% of small-cap funds maintained a top-half ranking for two additional consecutive 12-month periods (performance is based on equal weighted fund counts). Random expectations, such as using a two-sided coin, would suggest a rate of 25%.
Before plowing money into a fund, understand its strategy, evaluate how much it costs in respect to others in its category, and don’t just eye performance, really look to see how it performs during different market cycles. And as Rosenbluth said, remember that past performance can be a misleading indicator.