10
Expense ratios continue to fall. The typical investor
paid about
0
.
02%
less for domestic-stock fund
management, as the average asset-weighted fee fell
to
0
.
72%
. Foreign-stock fund fees also fell about
2
basis points and taxable-bond fund fees by
1
basis
point, while munis were unchanged.
Driving those lower fees was a stock market rally on
one hand and strong flows into bond funds on the
other. Most funds have management fee breakpoints
that kick in automatically when assets go above
set thresholds. Thus, fund companies share some of
the economies of scale with investors—though
they keep most for themselves.
I went looking for recommended funds with expense
ratio cuts to see which funds have become
more attractively priced, and I found some big cuts.
Scout Core Plus Bond
SCPYX
saw its fiscal
2012
expense ratio drop to
0
.
57%
from
0
.
78%
in
2011
, and
the fund is now actually charging just
0
.
40%
—the
higher annual figure is because the waivers started
midyear. The firm is waiving expenses above
0
.
40%
through October
2013
. We like the fund for its deft
maneuvering of sectors and credit exposure. In the
bond world, ”plus” means that the fund has greater
discretion to move the portfolio than a typical bench-
markcentric fund, though not as much as ”uncon-
strained” funds. Manager Mark Egan and team have
handled it well as they have produced top-decile
returns over the trailing three-, five-, and
10
-year
periods at this fund’s institutional share class. We
rate the fund Silver because of these strengths.
Because the fund is waiving fees, it’s possible the
waiver will be allowed to lapse in the future and
expenses will rise.
For
T. Rowe Price Diversified Small Cap Growth
PRDSX
, it’s plain old inflows rather than a waiver that
have driven down fees. The fund has produced strong
performance, and assets have risen to more than
$
500
million from $
200
million in a couple of years.
As a result, the fund’s expenses have fallen from
1
.
25%
in
2010
to
1
.
10%
in
2011
to
0
.
91%
in
2012
. Sud-
hir Nanda has guided the fund to outperformance in
each calendar year since he took over in
2006
. Nanda
uses quantitative models to select stocks based on
price/cash flow and other fundamental measurements.
Janus Overseas
JAOSX
saw a big
0
.
19%
drop res-
ulting in just
0
.
74%
in expenses for very different
reasons. A slump means that the fund’s management
fee has been hit with a performance-based penalty.
Big bets on financials and China have stung, and the
fund lags its benchmark by a wide margin over
the past three years. It takes a true contrarian to take
advantage of performance fee penalties, but if
Brent Lynn can regain the form that led to strong per-
formance in earlier years, this fund will prove to
be a real bargain.
The two best bargains here come from the home of
bargains: Vanguard. Bronze-rated
Vanguard Capital
Value
VCVLX
and Gold-rated
Vanguard Selected
Value
VASVX
got even cheaper. Vanguard Capital
Value’s expense ratio fell to
0
.
47%
from
0
.
58%
, and
Vanguard Selected Value’s fell to
0
.
38%
from
0
.
45%
.
Vanguard Selected Value is a concentrated deep-
value fund run in two sleeves. Jim Barrow and Mark
Giambrone run more than
70%
of assets with an
emphasis on cheap stocks with healthy yields; Donald
Smith and Rich Greenberg focus on low prices for
tangible book value. The fund has produced top-third
performance over the trailing three-, five-, and
10
-year periods. Don’t expect a smooth ride, however,
as deep value tends to hit speed bumps.
Vanguard Capital Value is a more extreme fund with
a more mixed record and therefore earns a Bronze
rating. Peter Higgins of Wellington is a very aggressive
value investor who has a yen for tech. Vanguard
added David Palmer from another part of Wellington
in an attempt to tone down the extremes, and that
has helped somewhat.
œ
Funds With Falling Fees
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to find
overlooked funds that may be
ready to rally.
