3 Tips for Mutual Fund Millions

By | June 29, 2007

3 Tips for Mutual Fund Millions

1. Keep it cheap. All funds charge an annual fee called an expense ratio. But some funds charge more than others. Interestingly, there’s zero correlation between the size of the expense ratio and the degree of market outperformance. For example, AIM Charter B (BCHTX) charges 2.01% annually but has lost to the market over the past five years. CGM Focus (CGMFX), by contrast, charges just 1.02% but, thanks to top holdings like MEMC Electronic Materials (NYSE: WFR) and Las Vegas Sands (NYSE: LVS), has walloped the S&P by more than eight percentage points per year since 2002.

2. Say no to loads. You don’t need sales charges, known as loads, either. Once again I refer you to AIM Charter B. Its positions in Coca-Cola (NYSE: KO) and ExxonMobil are easily duplicated by cheapskate market-beater Fidelity Contrafund (FCNTX).

3. Cut the fat. More insidious are funds that are no longer accepting new money but still charge a 12b-1 fee to cover marketing expenses. MainStay Equity Index (MCSEX), which has large positions in Pfizer (NYSE: PFE) and Altria (NYSE: MO), is a prime example. It charges 0.25% annually for promoting a fund you can’t buy and which, after expenses, has narrowly lost to the market since 2002.

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