Client Story – Planning for Retirement
October 5, 2018
2018 Third Quarter Market Commentary
October 8, 2018

Investor Series – Price

The final “P” in our analysis pertains to how expensive a fund is. The main indicator of price is the expense ratio which is typically found in the prospectus. The main question in this section is if the expense ratio reported is an acceptable price when looking at its category peers. The notion we must consider as well is that not all asset classes are going to have a similar acceptable threshold. For example, large cap stocks have much more analyst coverage and are more closely followed than are small cap stocks. Because of this, small cap managers tend to have higher expenses for increased due diligence and research they must perform internally. In 2017, large cap funds as a group had a median fee level of 75 bps as compared to small cap funds who had a median fee level of 1%. Investors many times are rightly concerned about how expensive a fund is, but price isn’t everything however. We can see that while it’s important, it’s still only one category of consideration. One of the small cap funds we include in our portfolios is considered more expensive relative to its peers, however in recent years it has been in the top 1% of funds for the whole category when looking at performance. The focus on price should not be the only reason an investor chooses to skip a certain fund. It should be wrapped in as a complement to the rest of the analysis.

Griffin Sheehy, Financial Analyst

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