Author Topic: Expense ratios with Funds of Funds  (Read 953 times)

mcampbell

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Expense ratios with Funds of Funds
« on: March 30, 2017, 08:37:39 PM »
When a fund has an expense ratio, but it also includes other underlying funds. Does that mean your paying multiple expense ratios ultimately? For example this Fidelity target fund, includes a dozen or so underlying funds. Each fund has its own expense ratio

https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/315792655

Goldielocks

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Re: Expense ratios with Funds of Funds
« Reply #1 on: March 30, 2017, 08:57:30 PM »
Yes....   That is why the MER total is usually higher than just the underlying funds.

From the link that you included:
Expense Ratio (net) is 0.77%

Exp Ratio (Net)
Expense ratio is a measure of what it costs to operate an investment, expressed as a percentage of its assets, as a dollar amount, or in basis points. These are costs the investor pays through a reduction in the investment's rate of return. For a mutual fund, the net expense ratio is the total annual fund or class operating expenses directly paid by the fund from the fund's most recent prospectus, after any fee waiver and/or expense reimbursements that will reduce any fund operating expenses. This ratio also includes Acquired Fund Fees and Expenses, which are expenses indirectly incurred by a fund through its ownership of shares in other investment companies. This number does not include any fee waiver arrangement or expense reimbursement that may be terminated without agreement of the fund's board of trustees during the one-year period. If the investment option is not a mutual fund, the expense ratio may be calculated using methodologies that differ from those used for mutual funds.
« Last Edit: March 30, 2017, 09:01:34 PM by Goldielocks »

MDM

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Re: Expense ratios with Funds of Funds
« Reply #2 on: March 30, 2017, 09:24:06 PM »
When a fund has an expense ratio, but it also includes other underlying funds. Does that mean your paying multiple expense ratios ultimately? For example this Fidelity target fund, includes a dozen or so underlying funds. Each fund has its own expense ratio

https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/315792655
Maybe.

For example, Vanguard Target Date fund fees are simply a weighted average of the underlying Investor Class fund fees.  No extra expense.  That is higher than a weighted average of underlying Admiral Class fund fees, so interpret that how you wish.

The only way to know for sure is to calculate the weighted average of the underlying fund fees and compare that to the fund of funds' fee.  E.g., see Re: Wealthment/Betterfront Nail In The Coffin Article and following posts.