3
Morningstar FundInvestor
May 2
014
continued toward the end of the year so that
the growth in assets wasn’t fully captured by
2013
’s
figures, which capture the
12
months ended Oct-
ober
2013
.
What’s Driving Lower Fees?
Asset growth is by far the biggest driver, as funds
typically have breakpoints set to automatically
lower fees as assets grow. And the largest part of
asset growth will usually be market performance,
as in
2013
.
However, a second component is fund flows. Fund
investors have become smarter about buying cheaper
funds. Last year,
95%
of net inflows went into funds
that ranked in the cheapest quintile of their category
peers. The two years prior it was actually greater
than
100%
because you had money going out of
pricier funds even as it was rushing into
cheaper funds.
In the
1990
s, investors were less choosy about fees.
Only
56%
of net inflows went into the cheapest
quintile. As I laid out above, low costs lead to supe-
rior returns, so no doubt some of the money going
into low-cost funds also reflects investors following
performance as well as expenses.
Where Are the Best Low-Cost Funds?
Last month I looked at funds where fees had fallen
the most. But those funds are not likely to be the
cheapest, as a truly cheap fund isn’t likely to be able
to make huge cuts. If you really want to enjoy the
power of low costs, I’d suggest investing in some of
the cheapest funds with Morningstar Analyst
Ratings of Gold.
I’ve gathered a list of low-cost Gold-rated funds and
selected one passive and one active for each of the
selected categories. It should be a handy shopping
list for you. In some cases I chose a Silver-rated fund
if a cheap Gold fund wasn’t available.
I find it helpful to make it a goal to lower my portfo-
lio’s overall expense ratio each year as I annually
select where to put money. So, if you put some money
in a fund with average expenses, put even more in
a fund with cheapest-quintile fees.
œ
Top Bargains in Core Categories
Name
Ticker
Morningstar
Analyst Rating
Morningstar
Category
Total Ret %
Rank Cat
1 Yr (Daily)
Total Ret %
Rank Cat
3 Yr (Daily)
Total Ret %
Rank Cat
5 Yr (Daily)
Total Ret %
Rank Cat
10 Yr (Daily)
Total Ret %
Rank Cat
15 Yr (Daily)
Prospectus
Net Expense
Ratio %
Vanguard Tax-Mngd Bal
VTMFX
Œ
Conserv Alloc
3
4
20
12
30
0.12
Vanguard Wellesley Inc
VWINX
Œ
Conserv Alloc
32
5
14
6
7
0.25
Vanguard Dev Mrkts Idx
VTMGX
Œ
Foreign Lg Blnd
27
20
36
38
0.09
Dodge & Cox Intl Stock
DODFX
Œ
Foreign Lg Blnd
1
7
5
7
0.64
Vanguard Intrm-Trm Bd Idx
VBILX
Interm-Trm Bnd
94
12
44
14
0.10
Dodge & Cox Income
DODIX
Œ
Interm-Trm Bnd
6
23
29
18
14
0.43
Vanguard Tot Stck Mkt Idx
VTSAX
Œ
Large Blend
31
23
12
16
0.05
Vanguard Dividend Growth
VDIGX
Œ
Large Blend
77
14
48
5
0.29
Vanguard Growth Index
VIGAX
„
Large Growth
58
16
20
34
0.10
Vanguard PRIMECAP Core
VPCCX
Œ
Large Growth
28
10
25
0.50
Vanguard Value Index
VVIAX
„
Large Value
36
26
25
28
0.10
Vanguard Equity-Income
VEIPX
„
Large Value
70
3
10
8
28
0.30
Fidelity Spartan Extnd Mkt Idx FSEMX
Œ
Mid-Cap Blend
30
25
18
11
77
0.10
Osterweis
OSTFX
Œ
Mid-Cap Blend
87
66
92
61
34
1.04
Vanguard Balanced Index
VBIAX
Œ
Mod Alloc
40
13
33
15
0.09
Vanguard Wellington
VWELX
Œ
Mod Alloc
24
7
17
4
7
0.26
Vanguard Lng-Trm Tax-Exempt
VWLTX
„
Muni Natl Long
6
43
55
22
12
0.20
Fidelity Municipal Income
FHIGX
Œ
Muni Natl Long
9
49
54
17
3
0.46
Vanguard Total Wrld Stck
VTWSX
„
World Stock
54
63
60
0.30
Dodge & Cox Global Stock
DODWX
Œ
World Stock
4
11
6
0.65
Looking for a great low-cost fund? I’ve
gathered some of the cheapest active
and passive funds. These ought to be
your defaults when shopping for funds.
If you pay more, make sure that you’re
confident you’ve improved on these
funds. For muni bonds I chose Van-
guard Long-Term Tax-Exempt as the
closest thing to an index fund as there
are virtually no index funds and this
fund keeps active bets to a minimum.
