Mutual Fund Expense Detail Question
Tommy Taylor
When, where, and how does Vanguard make this charge. Can I see it online?
Tess Millay
Great question. While I still promote the notion of building
a portfolio with low expense ratio mutual funds,
appropriately diversified, increasingly I am bothered by the
lack of transparency in distribution and fee structures. In
other words, I want my damned dividend distributions to
reflect what I would expect by examination of the underlying
stocks (taking into account the fund's expenses). There's
just no way to tell whether the fund managers and structure
are honest. You trust or not.
I hope someone will respond to the above.
Tad Borek
> For Vanguard Target Retirement 2025 Fund (VTTVX), the expense ratio is .20%.
> When, where, and how does Vanguard make this charge. Can I see it online?
Tommy-
If you're wondering whether there's a way to see changes to a mutual
fund's value as management fees are deducted, the practical answer is
no, because they don't come out all at one time. Operating expenses for
a fund like that are paid/assessed on an ongoing basis, out of the
fund's assets, and drag the fund down a tiny bit each week. The costs
are so low relative to assets that it's not going to be visible - a
couple days' market fluctuation can easily be more than an entire year's
expenses.
The most visible points are probably the distributions, because they'll
be paid from the net income of the fund (reduced by the expenses).
Meaning you get slightly lower distributions because of fund expenses.
If the fund doesn't have any distributions, the cost is still there
though - your NAV is a tiny bit lower because some assets have been
depleted to pay the rent.
It's a little more complicated because 2025 is a fund-of-funds, but
that's the basic idea. You can probably find some more detailed
information about expenses in the fund's prospectus, and in the
prospectuses of the funds held by 2025 fund. There, as well as in the
periodic filings from the fund, you'll find what looks like a Profit &
loss statement, listing out the total operational expenses deducted
during the year.
BTW, 0.2%, if that's what it is, is a very low annual expense level,
especially for a fund-of-funds.
-Tad
Bucky
> For Vanguard Target Retirement 2025 Fund (VTTVX), the expense ratio is .20%.
> When, where, and how does Vanguard make this charge. Can I see it online?
I think the expense ratio is taken out of the distribution.
jIM
especially for a fund-of-funds."
If the .2% is on top of the fees charged by each individual fund, then
I would counter the .2% is EXPENSIVE. Each fund already has a fee
structure, then the fund of fund wrapper also has a fee?
to my knowledge, T Rowe Price does not have a fee on a "fund of funds".
Reference my experience with Spectrum international and Spectrum
Growth when TRP ran my 401k.
Tad Borek
> "BTW, 0.2%, if that's what it is, is a very low annual expense level,
> especially for a fund-of-funds."
>
> If the .2% is on top of the fees charged by each individual fund, then
> I would counter the .2% is EXPENSIVE. Each fund already has a fee
> structure, then the fund of fund wrapper also has a fee?
Jim,
Good point, but for that Vanguard fund specifically that's the whole fee
because there's nothing charged at the fund-of-fund level. The expense
level quoted is a blended average of the underlying funds (I think it's
actually 0.21%).
They have an unusual setup...the underlying funds reimburse the FOF for
their reduced costs, and that reimbursement is enough to cover the
administration of the FOF. This makes some sense - imagine say
Vanguard's Total International Stock Index Fund - taking $30 million
from one of the Vanguard FOFs, vs. taking $30M in $10,000 chunks from
thousands of individual investors...clearly they save some money with
the FOF, so it's not unfair to other Total-Int'l shareholders to
reimburse the FOF to some extent.
You're right though that if it were 0.2% plus management fees for each
fund you could end up owning a very expensive fund and thinking it's
just 0.2%. That's a common criticism of funds-of-funds, "two layers of
costs". But that criticism doesn't appear to apply to Vanguard's, at
least under the current cost structure.
I'm not familiar w/T Rowe Price's FOFs but their reputation is for
having a low-cost structure for their funds, generally.
-Tad