Author Topic: Strange ER reporting  (Read 2038 times)

NoStacheOhio

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Strange ER reporting
« on: January 18, 2017, 12:26:47 PM »
So I was perusing my employer retirement fund plan options today, mostly just out of curiosity, not because I'm considering changing anything. Something really weird jumped out at me, that I couldn't quite figure out.

They have BlackRock Lifepath Index TDF options, and I took at a look at the expenses for LIZKX https://www.blackrock.com/investing/products/282489/

Net ER 0.14%, not bad for a single-fund option.

Gross ER 10.92%

What the what?

The funds with closer target dates were lower, but still significantly higher than the net. None of the underlying funds are particularly expensive.

I understand that net is what the investors ultimately pay, but the investopedia page says a gross ER above 4% is a potential red flag. Is it just because there's only ~$11m in the fund?

Mother Fussbudget

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Re: Strange ER reporting
« Reply #1 on: January 19, 2017, 02:13:45 PM »
Is it just because there's only ~$11m in the fund?

Yes.  Very likely.

SeattleCPA

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Re: Strange ER reporting
« Reply #2 on: January 20, 2017, 07:09:12 AM »
If you click the little "information" icon next to the expense ratio, you get a pop-up that probably provides the answer: Blackrock may temporarily waive fees.

FWIW, I personally would not put money into any "low cost" fund that's low cost because the fund manager is temporarily waiving fees.

Gunny

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Re: Strange ER reporting
« Reply #3 on: January 20, 2017, 07:22:48 AM »
If you click the little "information" icon next to the expense ratio, you get a pop-up that probably provides the answer: Blackrock may temporarily waive fees.

FWIW, I personally would not put money into any "low cost" fund that's low cost because the fund manager is temporarily waiving fees.

+1.  There is no way to tell what future fees may turn out to be.  Blackrock does manage the index that m TSP is in, but the Federal Government has negotiated seriously low fees for the TSP. 

NoStacheOhio

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Re: Strange ER reporting
« Reply #4 on: January 20, 2017, 07:36:06 AM »
If you click the little "information" icon next to the expense ratio, you get a pop-up that probably provides the answer: Blackrock may temporarily waive fees.

FWIW, I personally would not put money into any "low cost" fund that's low cost because the fund manager is temporarily waiving fees.

I saw that, but it was still a little hazy.

We have VIIIX (and VIEIX and VTSNX), so it's not like I'm looking to change anything. It was just weird.

marty998

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Re: Strange ER reporting
« Reply #5 on: January 20, 2017, 03:34:22 PM »
I can provide a little colour on this. Small funds are problematic for investment managers, because fixed costs are just that, largely fixed in $ terms. Usually the manager will rebate out of their own pocket admin, custody, and the big one - audit fees.

You need to remember the industry fee structure is built on Assets Under Management (AUM) - rip out too much AUM out in fees and costs early on and it is a significant detriment to future AUM as investors can go cold on a product very quickly.

SeattleCPA

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Re: Strange ER reporting
« Reply #6 on: January 20, 2017, 04:15:32 PM »
I think that some of the larger funds at well-known firms do this too, though, don't they?

No kidding, I'm delighted if I'm wrong about this, but I thought some of the Schwab target retirement funds have temporarily low ERs... (I saw this when I was writing a book about target retirement funds.)

So I think one wants to be careful, always.