Author - Lynn Garrison, PE, CFP®

Why Mutual Fund Fees Are Misleading

Why Mutual Fund Fees Are Misleading

According to a study released a few years ago by the Zero Alpha Group, almost half of the expenses of the top 30 domestic equity funds are omitted from their reported expense ratios.  The funds included in the study have about $750Billion of the approximately $7Trillion in mutual fund assets nationwide.

Edward O’Neil, assistant professor of finance at Wake Forest University, conducted the study.  He added the cost of trading incurred in portfolio turnover.  Transaction costs included brokerage expenses and implicit bid-ask spreads.  For some funds, the study found transaction costs exceed 400% of their expense ratios.

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