A Billion Here, A Billion There, and Pretty Soon You're Talking About Real Money

Connelly, Thomas
October 1997
Journal of Financial Planning;Oct97, Vol. 10 Issue 5, p36
Academic Journal
The article focuses on how Ted Aronson, managing partner of Aronson and Partners, qualifies and controls portfolio transaction costs at the company. Most planners are intimately familiar with the components of mutual fund expense ratios, which are reported in detail in a fund's statement of operations in the prospectus or semi-annual reports as a percentage of average monthly net assets. There are also some tax and timing considerations for fund shareholders. Commission costs are capitalized rather than expensed in funds, which sometime in the future will reduce capital gain distributions, rather than dividend distributions in the current tax year. Awaiting liquidity costs arise from market price changes while orders sit at the trading desk. Obviously, these costs will vary, and may even be positive, depending on the liquidity conditions for a particular stock at a particular time, and the size of the transaction. Armed with this knowledge, planners can go beyond elementary cost screening by asking fund managers those relevant questions regarding their management of trading costs.


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