ETF Store Show Recap – 9/17/11

Listen to The ETF Store Show every Saturday at 3pm on KCMO Talk Radio 710AM as we cover everything you need to know about Exchange Traded Funds and the world of investing. Have you ever really looked under the hood of your actively managed mutual fund to understand exactly what you’re paying for the grand opportunity to have your money invested by an underperforming manager?  On our most recent radio show, we did the dirty work for you and uncovered some startling figures.  Consider that according to Morningstar, in 2010, the average actively managed mutual fund investing in domestic large cap stocks carried an expense ratio of 1.26%, with many funds having expense ratios in excess of 1.5%. Just for fun, we compared that with The ETF Store’s current global strategic moderate portfolio – which as a side note, in addition to domestic large cap stocks, has exposure to asset classes such as gold, emerging markets, treasury inflation protected securities, and even Latin America.  Now get this – the weighted average expense ratio of the ETFs in our global strategic portfolio is .20%!  That’s greater than a one percentage point difference and keep in mind, if you were investing in actively managed mutual funds accessing asset classes such as emerging markets or Latin America, it’s highly likely that the expense ratios on those funds would be north of 1.26%. And, as we described on the show, this example really only tells part of the story.  In this analysis conducted by Wealthfront, when you factored in the management fee, trading commissions, non-management fee, marketing or 12b-1 fees, sales loads, redemption fees, and the opportunity cost on embedded tax liabilities, the actual cost of owning an actively managed mutual fund was greater than 3% annually!  Another analysis done by Independent Investor came to a similar conclusion as they laid out 13 separate costs of owning an actively managed mutual fund. These fees can have a significant impact on the long-term performance of your portfolio and as we’ve covered on previous shows, the majority of the time, the performance in these actively managed mutual funds leaves something to be desired. Listen to the full show here.