No, it means that in this case the management fee and the expense ratio paid by investors are the same.I am invested in a fund and on the fund website it says "Management fee: 0.28%", and then "Total expense ratio: 0.28%". Is this a trick to make people think they are only paying 0.28% total when in fact the fees amount to 0.56%?
Expense ratio doesn't count trading costs: commissions, bid/ask spreads, market impact costs; John Bogle estimated this was an additional 1% for stock funds but trading costs have fallen dramatically since then, it is probably more like 0.1% today. Bogle estimated that trading costs were 1 basis point for each basis point of portfolio turnover, in his day, portfolio turnover of 100% for a stock fund was not unusual. The highest trading costs I can imagine would be 0.25% but I think they are much lower. So in my example, your all-in costs would be 0.28% plus 0.1% for trading costs or a total of 0.38% with 0.1% trading costs to 0.53 with 0.25% trading costs. These trading costs might even be lower than the 0.1% estimate.
If someone more knowledgeable than I could comment on trading costs, I would appreciate it. Harold Bradley, the guy that used to run the trading desk at American Century Investments estimated that trading directly with other institutions through Electronic Communications Networks and bypassing the exchanges decreased trading costs for his firm by 75%. I know that commissions are way down and also bid/ask spreads. Trading algorithms and patient trading techniques have also reduced market impact costs that occur when large blocks of stock hitting the market affect securities prices. Hence, my guess that trading costs within a portfolio are down to 10 basis points or 0.10% a year for a stock mutual fund. But I don't know for certain, rough guesses on my part.
Statistics: Posted by nedsaid — Sun May 26, 2024 11:34 pm — Replies 2 — Views 262