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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25223  
Subject: Re: mutual fund expense ratio Date: 9/21/2011 4:33 PM
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I agree with what is posted above, but keep in mind an actively managed fund claims that it needs more money to hire the best stock pickers and support them with adequate staff and research. So they have an annual budget for these expenses which gets shared by all of the shares in the mutual fund.

You then expect that a very large mutual fund gets by with a lower expense ratio, because it has many outstanding shares. A smaller competing fund can be forced to cut corners and may still have to charge a higher expense ratio.

Similarly highly specialized funds that appeal to a small select group may have higher expense ratios.

But then there are the sector funds that invest in a fixed collection of stocks with little management. Too often they have high expense ratios, and share holders are getting gouged. It's not worth it.

Some note that small cap funds also have the problem that they cannot take large positions in these small stocks. Hence, they have more research to do, more paperwork, and more expenses.

The bottom line is if you pay more than average expense ratio, make sure you get better than average performance, because index funds are still inexpensive. They are preferred unless some manager can consistently outperform their indexes.
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