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Mutual fund expense ratio variety
Old 05-06-2008, 09:40 PM   #1
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Mutual fund expense ratio variety

My question primarily concerns actively-managed funds:

Why is it that certain funds, in particular certain sector funds, tend to cost more than others? For instance, I've noticed that a typical "technology" fund tends to be really pricey (~ 1.5%), whereas, say, and energy fund will often go for about half that. Often, these funds are buying about the same market-cap size stocks, so this isn't necessarily explained by one being from smaller (harder to pick?) market caps.

It seems like the trend I've seen is that the more "aggressive/volatile" the stocks are that composed the fund, the higher the expense ratios tend to be. I'm suspicious that they're doing that because its harder to notice a crazy-high expense ratio when the fund is going up-and-down all over the place. Is that pretty much it, or is there a more rational reason for them to charge more?

I can understand why foreign funds cost more though. Obviously, there's going to be more expenses associated with researching, purchasing, and handling foreign investments and monies.
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Old 05-06-2008, 09:52 PM   #2
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Might be size of the sector? There are more technologies (bio tech, electronics, software, hardware, semi conductor, services, IPOs etc...) than there are energy types (alternative energy, utilities maybe 1-2 others).

So the tech funds are probably turning over trying to play the sub sectors- meaning correlate turnover of fund with expense ratios and see the difference (within fund family). Compare T Rowe's tech funds with T Rowe's natural resources fund. Compare Fidelity's tech offerings with their energy offerings.

Post turnover and ER here.
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Old 05-06-2008, 10:09 PM   #3
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Quote:
Originally Posted by slazenger View Post
Why is it that certain funds, in particular certain sector funds, tend to cost more than others? .
You're blending costs with prices. What you see advertised for funds as expense ratios is your cost to own the fund which is also their price to you to own the fund. But their actual costs are something different. They charge us what they think we'll pay. And the relationship between that and their actual cost depends on many factors including how effective they think their marketing is.
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Old 05-06-2008, 11:13 PM   #4
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Originally Posted by youbet View Post
You're blending costs with prices. What you see advertised for funds as expense ratios is your cost to own the fund which is also their price to you to own the fund. But their actual costs are something different. They charge us what they think we'll pay. And the relationship between that and their actual cost depends on many factors including how effective they think their marketing is.
I was unintentionally confusing in my question. I'm only talking about expense ratios from one fund compared to another. I realize their costs in the fund can vary all over the map. If anything, I'm 'assuming" the cost of a tech fund is approximately that of an energy fund, which gets back to my question.

But in that last part, you did provide an answer to my question; you say you think they charge what we'll pay. So that begs the question; why would we pay more for a tech fund than a utility fund? Utility funds are actually hot now and have been for a while so it might stand to reason that we should want to pay more for them.
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