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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 |