Tags: Hulbert | mutualfunds | ETFs | fees

Hulbert: Some Open-End Mutual Funds Are Cheaper Than ETFs Are

By    |   Monday, 31 March 2014 08:55 AM

One of the main advantages cited for exchange-traded funds (ETFs) relative to open-end mutual funds is that ETFs are cheaper.

But that's not always the case, says Mark Hulbert, editor of Hulbert Financial Digest. "True, ETFs typically have much lower expense ratios than open-end funds," he writes in The Wall Street Journal.

Annual expenses for ETFs average 0.58 percent, less than half the 1.24 percent total for open-end mutual funds, according to Morningstar.

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5 Shocking Reasons the Dow Will Hit 60,000

But expense ratios don't cover some costs that put ETFs at a disadvantage, Hulbert notes. For example, there are transaction costs.

"These apply primarily to ETFs, since — provided you focus on no-load funds — you can often buy open-end index funds without a commission," he writes.

"With an ETF, you can pay a commission both to your broker as well as in the spread between the ETF's bid and offer price."

Then there is tracking error, which measures how far an ETF's return strays from the index to which it is benchmarked, Hulbert explains. Some ETFs have markedly underperformed their indexes during certain periods. That's obviously a major cost.

To be sure, fees aren't everything. Christine Benz, director of Morningstar, tells CNBC that investors shouldn't automatically reject mutual funds with sales fees (loads).

"If you're not comfortable putting together an asset allocation plan, selecting specific funds and monitoring that portfolio, then paying an advisor or broker to do it for you can be money well spent, even if it means paying a sales charge to buy or sell," she states.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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InvestingAnalysis
One of the main advantages cited for exchange-traded funds (ETFs) relative to open-end mutual funds is that ETFs are cheaper.
Hulbert,mutualfunds,ETFs,fees
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2014-55-31
Monday, 31 March 2014 08:55 AM
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