"Of Mutual Interest"-Penelope Wang, Senior Writer at "Money" Magazine
Tuesday, April 21, 2009PAUL KANGAS: In tonight's "Of Mutual Interest" segment, many investors buy mutual funds to help keep fees to a minimum, but that's becoming challenging. Joining me, Penelope Wang, senior writer at "Money" magazine. Penny, welcome back to the program.
PENELOPE WANG, SR. WRITER, MONEY MAGAZINE: Hi, Paul, great to be back.
KANGAS: What is changing in the world of mutual fund management fees?
WANG: The biggest change is an amazing decline in assets held by the sun companies. They're down nearly 40 percent from the peak in 2007 and because assets have declined, they're earning less management fees which are paid as a percentage of those assets. So bottom line investors can look for fees on their funds to go up in the next year or so.
KANGAS: How much would you think they'll go up on average?
WANG: On average it's not an earth-shaking amount maybe five basis points or so though some funds may charge more but any percentage that gets taken out of our return hurts especially when returns are so slow.
KANGAS: So the increases won't be uniform across the industry.
WANG: No, it won't be uniform. It will be on a case-by-case basis but you can expect that some fund companies will try harder to keep fees from rising than others.
KANGAS: Read the prospectus carefully, correct?
WANG: Absolutely and a low return environment, trying to control your cost is really important.
KANGAS: Well, let's have a theoretical situation where the market comes back strongly and the mutual fund assets rebound nicely, can we expect a cut in mutual fund management fees?
WANG: I would expect in a competitive industry like the fund industry, fees will start to come down again. That's been the case up until last year but you can't count on the market bailing you out of a high expense fund, so if you have lower cost options to look at, index funds or lower cost actively managed funds, now's a good time to take a close look.
KANGAS: So you're advising investors to do what at this stage?
WANG: I would advise them to see if their funds charge below average expense ratios, say below one percent for a stock fund or below 60 basis points for a bond fund and unless you're really happy with returns on your fund, take a look at lower cost alternatives, including index funds and ETFs.
KANGAS: That's great information as always. Thanks so much Penny.
WANG: Thank you, Paul.
KANGAS: My guest Penelope Wang, senior writer for "Money" magazine.
