Low Fund Expenses Not Necessarily Performance Predictors . .

July 2004
Journal of Financial Planning;Jul2004, Vol. 17 Issue 7, p20
Academic Journal
This article provides information on a study by Lipper Inc., which claims against conventional wisdom that lower mutual fund expenses are more likely to outperform their higher-expense counterparts on a net return basis. Using three-year increments and including all fund share classes, the study found that lower expense ratios are associated with higher returns, but only for no-load and institutional funds. With load shares, however, higher expense ratios are associated with higher returns. As for the issue of 12b-1 fees, the study considers them dead-weight cost for no-load shares but somewhat mitigated for load shares because advisor-counseled investors are less likely to sell into market weaknesses. Some observers have allegedly criticized the study for using only three-year periods, but the study's author counters that such is that timeframe investors and their advisors typically gauge a fund's performance.


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