Load vs. No-Load Part 2

Jeremy from Generation X Finance left the following comment on my last post:

That’s very true, and it is obvious that when all things considered are the same, no up front load and lower expenses will add up to a significant difference over time. But, what about a real world example, comparing two funds with the same investment objective, tracking past historical results?

For example, just quickly I went and looked at a few income funds I have heard of and know perform fairly well. Both are conservative allocations, both have a somewhat similar investment mix, both are 5-star morningstar rated and have ranked in the top 10 of income funds for the past 1, 3, 5 and 10 year periods.

I’m looking at:

Vanguard Wellesley Income VWINX
Franklin Income FKINX

No-load obviously on vanguard, and a 0.25 expense ratio. Franklin has a front-load of 4.25% and 0.65 expense ratio. Looking at the past 10 years:

1-Year 17.35
3-Year Annualized 11.99
5-Year Annualized 11.64
10-Yr Annualized 9.52

1-Year 11.10
3-Year Annualized 8.45
5-Year Annualized 6.72
10-Yr Annualized 8.66

Now, these are total returns, not counting the loads/expenses, but in comparing two of the top funds with the same investment objective, in this case would the load and higher expense ratio be more beneficial in the long run?

I don’t know, I’m at work and don’t have the time to calculate anything, but could you plug these numbers into your spreadsheet and see how they compare JLP? I’m curious to see how it works out when comparing them with say a 5 and 10 year annualized return for these specific funds.

Here are the results using the numbers provided above:

Using the 5-Year Annual Returns:
Franklin Templeton Income (FKINX) vs. Vanguard Wellesley Income (VWINX)

Using the 10-Year Annual Returns:
Franklin Templeton Income (FKINX) vs. Vanguard Wellesley Income (VWINX)

As you can see, the Franklin Templeton Income Fund SMOKED the Vanguard Wellesley Income Fund for both time-periods. What does this show us?


5 thoughts on “Load vs. No-Load Part 2”

  1. Wow thanks, that was a quick update. Very interesting results. I did not expect them to be that significantly different though, a bit of a shock.

    When I get home tonight I may have to put together a spreadsheet like that so I can compare additional funds with data like this in the future.

    Of course, past results are never an indication of future performance!

  2. One caveat to these results is that past performance, of course, is no guarantee of future performance. I don’t have the stats at the moment, but most actively managed mutual funds that do better than their peers over one decade do worse than their peers over the next decade. Of course it is possible to choose a fund that did better than Vanguard’s Wellington fund over the past 10 years and say you should have bought that fund instead; that’s only useful, though, if you have a time machine and can go back to 1996 to buy that fund.

    What I think would be more interesting (not to mention useful) is to compare the 10, or 5, loaded balanced mutual funds which had the best 10-year track record in 1996- And then compare it ‘forward’ with a no-load, low-fee balanced fund like Wellington. I bet that the majority would have a worse return, after accounting for loads and expenses.

  3. Thanks for running these numbers. Unfortunately, these two funds aren’t completely comparable. While both are listed as Conservative, the Franklin fund has more risk through it’s use of junk bonds (http://en.wikipedia.org/wiki/Junk_bonds):

    “It may invest up to 100% of total assets in debt securities that are rated below investment-grade, but it is not currently expected that the fund invest more than 50% of assets in these securities.

    It’s not necessarily a worse fund because of this choice, but returns will likely be higher, and lower, than the more conservative Vanguard fund:

    “The fund invests approximately 60% to 65% of its assets in investment-grade corporate, U.S. Treasury, and government agency bonds, as well as mortgage-backed securities.”

    In the long term, with good management, I’d expect the Franklin fund to show higher returns. If you’re looking for a conservative income fund, however, it likely won’t be as stable as the Vanguard fund.

    Just trying to confuse the issue a bit.


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