“…the average equity fund pays approximately 0.30% of assets a year [in trading costs]. That’s roughly 30% of the average no-load large-cap fund’s expense ratio. Thus, brokerage commissions can take what looks to be 0.90% paid in expenses each year up to 1.20%.”
This topic has been receiving more attention over the last couple of years. John Bogle has written about it in his books and I have seen more articles on this topic recently. It’s a good thing.
One of the funds with the highest trading costs is MFS Core Growth A (MFCAX), which payed out 1.2% of fund assets in brokerage commissions. Not surprisingly, the fund’s performance isn’t that great.
What’s bad is these numbers aren’t reported to mutual fund shareholders as part of the management expense ratio.
Should they be?
Yes, mutual fund net returns take into account such fees, but the information on these fees is usually buried in the mutual fund’s prospectus. The author of the article does mention that Morningstar plans to start tracking and publishing this information in the future.