Help me understand expense ratios

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bmorehokie
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Help me understand expense ratios

Post by bmorehokie » Tue Aug 20, 2013 8:37 am

When you look at the performance of a fund, are the past returns net of the ER?

Both of these funds are Emerging Market fund, one has a MUCH higher ER but the past performance of the Virtus fund is slightly better than the Vanguard. Is this number net of all fees (excluding any potential load)?

PICEX - Virtus Emerging Markets Opportunities C (2.35%)
10 year return: 12.87%

VEIEX - Vanguard Emerging Mkts Stock Idx (0.33%)
10 year return: 12.36%

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Aptenodytes
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Re: Help me understand expense ratios

Post by Aptenodytes » Tue Aug 20, 2013 8:48 am

bmorehokie wrote:When you look at the performance of a fund, are the past returns net of the ER?
Yes.
bmorehokie wrote: Both of these funds are Emerging Market fund, one has a MUCH higher ER but the past performance of the Virtus fund is slightly better than the Vanguard. Is this number net of all fees (excluding any potential load)?

PICEX - Virtus Emerging Markets Opportunities C (2.35%)
10 year return: 12.87%

VEIEX - Vanguard Emerging Mkts Stock Idx (0.33%)
10 year return: 12.36%
You are comparing apples and oranges. PICEX is a managed fund, VEIEX is a passive fund. You will always find an active fund that beats a passive fund over some previous time period. You should never choose funds on this basis. When thinking about the future, you want the fund that tracks the appropriate index with the lowest ER.

ieee488
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Re: Help me understand expense ratios

Post by ieee488 » Tue Aug 20, 2013 9:39 am

bmorehokie wrote: the past performance of the Virtus fund is slightly better than the Vanguard.
past performance are the operative words.

If we could predit future performance from past performance we'd all be rich.
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HomerJ
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Re: Help me understand expense ratios

Post by HomerJ » Tue Aug 20, 2013 10:15 am

20%-30% of all managed funds beat the index funds every year, even after expenses.

Interestingly though, it's not the SAME 20%-30% each year. So past performance doesn't help you predict the future winners.

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Bounca
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Re: Help me understand expense ratios

Post by Bounca » Tue Aug 20, 2013 10:37 am

Pfft! 0.5% gain over that period with all the risks/cost associated with an active fund management. Stupid luck.

I'd pass.

bmorehokie
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Re: Help me understand expense ratios

Post by bmorehokie » Tue Aug 20, 2013 11:21 am

Thanks for all the replies, I was more inquiring about the ER and how it was conveyed in the previous years returns. I also know the past does not predict the future.
Bounca wrote:Pfft! 0.5% gain over that period with all the risks/cost associated with an active fund management. Stupid luck.

I'd pass.
Relating to this, why does Morningstar show PICEX as lower risk than VEIEX? I have noticed this about multiple of Vanguard's funds when comparing to some actively managed ones.

http://quotes.morningstar.com/fund/PICEX/f?t=PICEX
http://quotes.morningstar.com/fund/VEIEX/f?t=VEIEX

gerrym51
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Re: Help me understand expense ratios

Post by gerrym51 » Tue Aug 20, 2013 11:37 am

sometimes people obsess about expense ratios.

2 percent however is way to high.

if you really like a managed fund still to me must be no more than 1 percent.

i myself if i like a fund won't hesitate if no more than .8

non managed funds should always be less than .4

my opinions

pkcrafter
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Re: Help me understand expense ratios

Post by pkcrafter » Tue Aug 20, 2013 1:46 pm

bmorehokie wrote:Thanks for all the replies, I was more inquiring about the ER and how it was conveyed in the previous years returns. I also know the past does not predict the future.
Bounca wrote:Pfft! 0.5% gain over that period with all the risks/cost associated with an active fund management. Stupid luck.

I'd pass.
Relating to this, why does Morningstar show PICEX as lower risk than VEIEX? I have noticed this about multiple of Vanguard's funds when comparing to some actively managed ones.

http://quotes.morningstar.com/fund/PICEX/f?t=PICEX
http://quotes.morningstar.com/fund/VEIEX/f?t=VEIEX
PICEX and VEIEX are not really comparable. For instance, PICEX shows ~30% in developed markets, it's very tilted to large growth, and it has a higher average market cap than VEIEX. Neither fund tracks the M* benchmark, which is EAFE, not EM. Total returns for both funds are very even over 10-15 years.

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Taylor Larimore
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Re: Help me understand expense ratios

Post by Taylor Larimore » Tue Aug 20, 2013 2:01 pm

bmorehokie:
When you look at the performance of a fund, are the past returns net of the ER?
The quick answer is "Yes, past returns reported by a mutual fund are net of the ER."

This is a part of Morningstar's definition of "Expense Ratio":
The expense ratio expresses the percentage of assets deducted each fiscal year for fund expenses, including 12b-1 fees, management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund. Portfolio transaction fees, or brokerage costs, as well as initial or deferred sales charges are not included in the expense ratio.
Best wishes.
Taylor
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