Advisory Fee and Mutual Fund Returns

Autor: Tim Mooney, Philip Russell, Davinder K. Malhotra
Rok vydání: 2020
Předmět:
Zdroj: The Journal of Index Investing. 11:81-91
ISSN: 2374-135X
2154-7238
DOI: 10.3905/jii.2020.1.098
Popis: Mutual funds open up the door to diversified investments for individual investors in the stock and bond markets and minimize company-specific stock risk. Since mutual funds are managed by a team of investment professionals, they charge management fees to cover their operating costs, such as the cost of hiring and retaining investment advisors who manage funds’ investment portfolios. Since expenses are a charge against returns to investors, a fund with high fees must perform better than a low-cost fund to generate the same returns for the investor. Even small differences in fees can translate into large differences in returns when compounded over a period of time. This study examines whether higher advisory fee results in a superior rate of return for investors. If there is a link between advisory fee and returns, and are mutual fund investors paying attention? TOPICS:Mutual fund performance, manager selection, wealth management, equity portfolio management Key Findings • There has been a secular trend of declining advisory fees across the sample period. • Equity mutual funds’ 12-month total returns show more volatility than their advisory fee over the period of 2000 to 2017. • Advisory fees had a positive relation to the 12-month total returns, but in terms of causality, we did not find evidence that higher advisory fees are consistent with greater portfolio manager skill. In other words, paying more for advisory services in exchange for higher fund returns is not “worth it.”
Databáze: OpenAIRE
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