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Not All S&P 500 Index Mutual Funds Are Created Equal!
By JLP | February 14, 2007
Just for fun (or because I’m weird) I decided to try to find all S&P 500 Index mutual funds and then rank them by expenses. I was amazed at what I found. To find the funds, I used SmartMoney’s Fund Screener. I ran the screen looking for all S&P 500 Index funds, and came up with 174. Now, some of these funds are different share classes with the same mutual fund company. However, I was still amazed to find 174 mutual funds that track just the S&P 500 Index. Here’s what I found out (oh, and here’s the entire list):
The first graphic shows us how many of each type of fund there was in the database:
Over 45% of all 174 S&P 500 Index mutual funds are considered institutional fund, which are funds used in a lot of retirement plans.
The next graphic shows us the average management fees (according to the Smart Money Fund Screener) for each share class:
These numbers really shouldn’t surprise us. The main reason the first two classes are so much more expensive is that they have higher 12b-1 fees to compensate the broker. Eventually the back-end load mutual fund will revert to the same management fee schedule as the front-end load mutual fund, which will mean lower fees. What I found interesting was the fact that the no-load class was actually cheaper on average than the institutional class. The level load fund will remain the same for as long as the mutual fund is owned.
The third graphic shows how many funds fall in a few different expense ranges:
Over 48% of the mutual funds charge .50% or higher, while only 16.67% of the funds charge .20% or less.
So, what should we take from this?
Although it may not be true with actively-managed mutual funds, when it comes to indexing, the cheapest is usually the best. The more you spend in management fees, the more likely you are to lag the index. Not all of these index mutual funds are available to investors. Some come with high minimums, which makes them harder for individual investors to use.
Topics: Index Funds, Investing |
February 14th, 2007 at 8:26 am
Thanks for this post. I’m saving some money for my daughter’s ESA, and I’ve been looking for the least expensive index fund. Thanks!
BTW, have you done, or considered doing, a post about ETF’s that track the sp 500 in different ways? That would be interesting…
NCN
February 14th, 2007 at 8:26 am
Great research! I always knew all “500″ indexes were not the same but its nice to see exactly what is out there!
February 14th, 2007 at 9:24 am
great information!
February 14th, 2007 at 1:15 pm
JLP- Nice post.
It’s not surprising that the no load funds have the lowest fees. The two groups of funds (no load and load (and I include 12b funds in the latter class) have differnet target markets. The noloads are competing on a cost bases and are geared towards more sophisticated investors (both on the retail side and to institutuions). So, it makes sense that they try to keep management expenses down.
I did some searching around a couple of years back when I was teaching personal finance. I found the absolute worst index fund - 1.6% annual management fee and a 3.5% load. I can’t remember the fund, but it was marketed by a bank that’d also had a lot of bad press for having the worst credit card around.
February 14th, 2007 at 3:54 pm
can you post the annual returns by class and/or fee range?
February 14th, 2007 at 11:55 pm
William Bernstein makes a distinction between stock picking skills vs. transaction execution skills. He denies the former are attainable to any significant degree.
However, transaction skills keep fees low, and tax consequences to the minimum, and are attainable.
I noticed recently that the Fidelity Spartan S&P 500 index fund with the lowest expense ratio at 0.1%, has a disclaimer that this rate is a result of voluntary fee waiver which they may change at any time. I like the rate, but it’s something to keep in mind.
February 16th, 2007 at 5:21 am
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