How much weight do you give to expense ratios

[Qs Laptop]

I'm curious. Do you have total return numbers for both funds? Comparisons like this are often flawed by using only price return for the S&P and ignoring its total return including dividends.

I use the charting tool for the fund and compare to the index fund. Morningstar, Yahoo Finance, etc. I guess you would have to determine if these charting tools take into account total returns. I would guess they do.

Based on the capital gains and dividends I've received over the years from FBGRX I would say that yes, the total returns are greater with FBGRX than the index funds.

Previously, this was easily found by using Backtest Portfolio but that is now a fee based system if you want to look back more than 5 years.

 

[OldShooter]

... Almost all comparison charting tools has the benchmarks available as a comparison. It's fairly easy to pick a fund and then click on chart, then compare, then click on S&P index fund, then 3 year, then 5 year, then 10 year timeframes.

I have seen very few of these tools that compare on a total return basis. Almost always it is only price return that is being compared. This is misleading at best. Can you provide links to any tools that do the comparison correctly?

 

[imbatman]

I see Fidelity has a CEF screener tool. How does one become savvy in CEF buying?

I use this every day: https://www.cefconnect.com/ as it has a great screener.....cefdata.com is good too but similar info

Definitely read the prospectus and understand CEFs and terms as Montecfo indicated

I tend to look at those with a large market cap ($1B or larger), from investment firms I know, paying monthly distributions largely from income, and trading at a discount to their 5-year average premium / discount (also known as Z-ratio).....but all of this, only in areas where I think the sector is undervalued

Good luck!

 

[momoney]

I'm curious. Do you have total return numbers for both funds? Comparisons like this are often flawed by using only price return for the S&P and ignoring its total return including dividends.

I got this from AI. Is this correct?

Let's compare how a $10,000 investment in FBGRX and SPY would perform over 10 years, including dividends and expenses.

FBGRX (Fidelity Blue Chip Growth Fund):​

• 10-Year Average Annual Return: ~17.18% per year
• Expense Ratio: 0.79%
• Dividends: ~0.57% average yield

Calculation:​

1. Initial investment: $10,000
2. Growth over 10 years at 17.18%:
   • After 10 years, the investment grows to approximately $48,907.
3. Adjusting for the 0.79% expense ratio:
   • Effective growth = 17.18% - 0.79% = 16.39%.
   • After 10 years with this effective rate: $45,710.

SPY (S&P 500 Index Fund):​

• 10-Year Average Annual Return: ~12.70% per year
• Expense Ratio: 0.09%
• Dividends: ~1.92% average yield

Calculation:​

1. Initial investment: $10,000
2. Growth over 10 years at 12.70%:
   • After 10 years, the investment grows to approximately $33,107.
3. Adjusting for the 0.09% expense ratio:
   • Effective growth = 12.70% - 0.09% = 12.61%.
   • After 10 years with this effective rate: $32,998.

Final Results for $10,000 Investment:​

• FBGRX: $45,710 after 10 years.
• SPY: $32,998 after 10 years.

 

[OldShooter]

I got this from AI. Is this correct?

Interesting. It might be. What I can't tell is whether the dividends are included in the "10 year Average Annual Return. If they are I would think the result is correct.

That said, the semianual S&P SPIVA reports usually come up with single digit percentages of funds that beat their benchmarks over ten years. IIRC 5-7% will outperform. The problem for us investors is identifying them at the beginning or the ten year period, since persistence doesn't seem to exist.

Here's a chart I use in my adult-ed investing class. On the left is a stack of funds' five year results broken into quintiles. Then to the right is shows the subsequent 5 year returns of the top quintile. Not encouraging for those who love backtesting. (This is taken from one S&P Persistence report, but like the SPIVA reports they are basically all the same.)

 

[Qs Laptop]

I got this from AI. Is this correct?

Let's compare how a $10,000 investment in FBGRX and SPY would perform over 10 years, including dividends and expenses.
.

Final Results for $10,000 Investment:​

• FBGRX: $45,710 after 10 years.
• SPY: $32,998 after 10 years.

And here is the chart from Morningstar.com

https://www.morningstar.com/funds/xnas/fbgrx/chart

10 year return, starting with $10,000.

FBGRX: $49,302
VFINX: $33,624

(VFINX is a popular S&P500 index from Vanguard, expense ratio 0.14%)

 

[imbatman]

Not all of us are doing lifetime trades where we set at a point and time and leave it, so that is where opportunistic purchasing is a different animal than long term returns.

For long term comparisons, the hard part is identifying those few funds that manage to beat the market......most people don't choose well and is why the general message from media is to just get the index.

 

[Qs Laptop]

Interesting. It might be. What I can't tell is whether the dividends are included in the "10 year Average Annual Return. If they are I would think the result is correct.

That said, the semianual S&P SPIVA reports usually come up with single digit percentages of funds that beat their benchmarks over ten years. IIRC 5-7% will outperform. The problem for us investors is identifying them at the beginning or the ten year period, since persistence doesn't seem to exist.

Here's a chart I use in my adult-ed investing class. On the left is a stack of funds' five year results broken into quintiles. Then to the right is shows the subsequent 5 year returns of the top quintile. Not encouraging for those who love backtesting. (This is taken from one S&P Persistence report, but like the SPIVA reports they are basically all the same.)

​

What other product or service in life would you choose WITHOUT looking at its track record? Sure, persistence is rare over long periods of time, but a general indication of trends is useful.

Are Toyota automobiles reliable? They have been in the past, but who knows what next year will bring, right? Are people silly to look up repair record history of automobiles before purchasing? Same principal with mutual funds, especially with mutual fund managers.

I don't know how anyone can deny that FBGRX has beaten the index over time. Again, take any 3, 5, 10, 15, 20 year period and compare to the index. Given that success rate, I'm going to assume it will continue for the next 3, 5, 10 years as well.

 

[Qs Laptop]

Not all of us are doing lifetime trades where we set at a point and time and leave it, so that is where opportunistic purchasing is a different animal than long term returns.

For long term comparisons, the hard part is identifying those few funds that manage to beat the market......most people don't choose well and is why the general message from media is to just get the index.

^^ Yes, This. ^^

 

[Koolau]

I got this from AI. Is this correct?

Let's compare how a $10,000 investment in FBGRX and SPY would perform over 10 years, including dividends and expenses.

FBGRX (Fidelity Blue Chip Growth Fund):​

• 10-Year Average Annual Return: ~17.18% per year
• Expense Ratio: 0.79%
• Dividends: ~0.57% average yield

Calculation:​

1. Initial investment: $10,000
2. Growth over 10 years at 17.18%:
   • After 10 years, the investment grows to approximately $48,907.
3. Adjusting for the 0.79% expense ratio:
   • Effective growth = 17.18% - 0.79% = 16.39%.
   • After 10 years with this effective rate: $45,710.

SPY (S&P 500 Index Fund):​

• 10-Year Average Annual Return: ~12.70% per year
• Expense Ratio: 0.09%
• Dividends: ~1.92% average yield

Calculation:​

1. Initial investment: $10,000
2. Growth over 10 years at 12.70%:
   • After 10 years, the investment grows to approximately $33,107.
3. Adjusting for the 0.09% expense ratio:
   • Effective growth = 12.70% - 0.09% = 12.61%.
   • After 10 years with this effective rate: $32,998.

Final Results for $10,000 Investment:​

• FBGRX: $45,710 after 10 years.
• SPY: $32,998 after 10 years.

What will the results be in 10 years? If you buy more of the FBGRX this year, how will it's results look compared to the SPY in 10 years. THAT to me is the issue. It's true you can look backward and find winners. How much does that help going forward? Winners tend to become losers eventually. It's just the nature of the beast but I'm sure some people come out ahead - even over a life time of investing. BUT we'll only know the winners at the end - not at the beginning. YMMV

 

[Qs Laptop]

What will the results be in 10 years? If you buy more of the FBGRX this year, how will it's results look compared to the SPY in 10 years. THAT to me is the issue. It's true you can look backward and find winners. How much does that help going forward? Winners tend to become losers eventually.

Consider that the top holdings in FBGRX are most of the top stocks in the S&P500 by market cap. Therefore, it is extremely unlikely that FBGRX is going to lose out to the index fund over the next 10 years. If there is a year or two that it does not beat the index, you can be sure the index was not in positive territory that year.

Plus, the gains made in the previous 10 years by FBGRX over the index means that even with a down year it's still going to come out ahead vs. the index. Look at the prior 10 year return chart (above.) Since FBRGX is mostly the top 10 stocks in the S&P500 index how bad would it have to falter to lose its $16,000 lead it has over the index from the past 10 years. BTW, that $16,000 lead it has on the index is roughly 50% more return over 10 years.

 

[OldShooter]

What other product or service in life would you choose WITHOUT looking at its track record? Sure, persistence is rare over long periods of time, but a general indication of trends is useful.

Agreed that is an attractive argument, mostly because it works in so many cases. But not all. (It's also what the investment industry is working continuously to make us believe.)

Now look at a trout stream and predict for me the next few hours of current flows. The flight path of a bumble bee?

Dr Fama and Dr. French would disagree with you on the idea that trends are useful: " ... our results on long-term performance say that true α [outperformance] in net returns to investors is negative for most if not all active funds, including funds with strongly positive α estimates for their entire histories." (Fama/French "Luck Versus Skill in the Cross Section of Mutual Fund Returns" :Luck Versus Skill in the Cross Section of Mutual Fund Returns)

It was a huge lift for me to finally accept that the short-term (a few years) behavior of the market is near-random. But once I got over that hurdle, a lot of things became clearer. The general failure of stock picking, for example. The lack of persistence. This is not as revolutionary as it may sound; all of Modern Portfolio Theory is based on the assumption that asset prices are random.

 

[Qs Laptop]

Agreed that is an attractive argument, mostly because it works in so many cases. But not all. (It's also what the investment industry is working continuously to make us believe.)

Now look at a trout stream and predict for me the next few hours of current flows. The flight path of a bumble bee?

Yes, those are random chance actions (and strawman arguments). The fact that FBGRX is made up of the top holdings in the S&P500 index means it has a direct relationship with the index. Generally, it's going to track the index. It also beats the index 8 or 9 years out of 10. If I'm an investor that is looking for greater returns than the index that is a compelling argument. It's not random chance.

 

[Al18]

FBGRX is an interesting fund. Looking at the past 10 year performance, it closely tracked the Russell 1000 Growth index until 3/20, when the performance radically diverged and performance increased. Note 3/20 is when Covid 19 shutdown the US and most of the world. Currently it’s top 10 holdings comprise 62.62% of the total portfolio and 7 of it’s top 10 holdings are the same as the S&P500 Index fund FXAIX. It’s a highly concentrated fund that paid no dividends from 12/18 until 9/24.

 

[Montecfo]

I got this from AI. Is this correct?

Let's compare how a $10,000 investment in FBGRX and SPY would perform over 10 years, including dividends and expenses.

FBGRX (Fidelity Blue Chip Growth Fund):​

• 10-Year Average Annual Return: ~17.18% per year
• Expense Ratio: 0.79%
• Dividends: ~0.57% average yield

Calculation:​

1. Initial investment: $10,000
2. Growth over 10 years at 17.18%:
   • After 10 years, the investment grows to approximately $48,907.
3. Adjusting for the 0.79% expense ratio:
   • Effective growth = 17.18% - 0.79% = 16.39%.
   • After 10 years with this effective rate: $45,710.

SPY (S&P 500 Index Fund):​

• 10-Year Average Annual Return: ~12.70% per year
• Expense Ratio: 0.09%
• Dividends: ~1.92% average yield

Calculation:​

1. Initial investment: $10,000
2. Growth over 10 years at 12.70%:
   • After 10 years, the investment grows to approximately $33,107.
3. Adjusting for the 0.09% expense ratio:
   • Effective growth = 12.70% - 0.09% = 12.61%.
   • After 10 years with this effective rate: $32,998.

Final Results for $10,000 Investment:​

• FBGRX: $45,710 after 10 years.
• SPY: $32,998 after 10 years.

Thanks for this. It makes your point clearly.
One note: the fund expense is already in the total return calculation. No adjustment for this is needed. Ever.

FYI

 

[target2019]

Curious about how people see this. It seems it's rather hyped IMO - while I get all things being equal, choose lesser expenses, I'm a bottom line kind of guy, so if I think a fund is better than another, I'm not going to get wrapped up too much in one having a bigger expense ratio than another.

What your analysis is missing is the comparison of long term performance of your fund and a passive index fund with low expense ratio. Mention your fund ticker to discuss more further.

 

[Murf2]

Repeat after me: "It's total return."

So if a fund has a total return of 45.0% over 5 years and charges 0.70% expense ratio and another similar fund has a total return of 39.8% over the same 5 years and charges 0.50% expense ratio I choose to pay the higher expenses because the company has a better track record.

It's the same idea in sales. A salesperson that gets 4% commission turns in $300,000 in sales in a month. Another salesperson gets 5% commission and turns in $350,000 is sales in a month. And this has been consistent for years. Who do you hire?

And of course remember, ‘ past performance is no……..”

 

[bada bing]

Yes, those are random chance actions (and strawman arguments). The fact that FBGRX is made up of the top holdings in the S&P500 index means it has a direct relationship with the index. Generally, it's going to track the index. It also beats the index 8 or 9 years out of 10. If I'm an investor that is looking for greater returns than the index that is a compelling argument. It's not random chance.

Just for the sake of argument - the beta of FBGRX is 1.26. I haven't crunched the numbers, but it looks like the performance verses S&P500 is more than explained by additional risk. One thing I notice missing from the thread analysis is that comparing performance needs to be done on a risk adjusted basis. That's the gold standard for assessing active management.

QQQ (The Nasdaq 100 Index) has a beta of 1.18 and edges FBGRX on the basic metrics over ten years - Total Return, SD, Drawdown. And it is an unmanaged index, fairly expensive for an index with .20 ER, but still less than 1/2 the .48 ER of FBGRX. If you compare the holdings between the two, the top 10 holdings are nearly identical. with both being heavily concentrated in the top 10 (FBGRX being even more so). The comparison with QQQ is a much better match than comparing FBGRX against the S&P500. I don't see anything in the performance record of FBGRX that is a defense of paying extra for active management at all. Quite the contrary. FBGRX looks to me like a slightly riskier, slightly underperforming version of QQQ that you pay 2.5X the ER for.

I wish it was different, but I've yet to see any compelling evidence that stock picking, especially active management for mutual funds, is worth the expense. YMMV of course.

 

[Qs Laptop]

QQQ (The Nasdaq 100 Index) has a beta of 1.18 and edges FBGRX on the basic metrics - Total Return, SD, Drawdown. And it is an unmanaged index, fairly expensive for an index with .20 ER, but still less than 1/2 the ER of FBGRX. If you compare the holdings between the two, the top 10 holdings are nearly identical. The comparison is a much better match than comparing FBGRX against the S&P500. I don't see anything in the performance record of FBGRX that is a defense of paying extra for active management at all. Quite the contrary.

Comparison to the S&P500 index is the standard that most other securities are measured.

I own both of these funds. FBGRX holds NVDA as the number one holding at 13.5%; QQQ has APPL as the number one holding at 9.0%. This is the reason FBGRX has beaten QQQ of late. NVDA is a growth stock; APPL hasn't been a growth stock for several years now.

Over the past 5 years, total return:
QQQ......165.70%
FBGRX....168.3%

Over the past 3 year, total return:
QQQ.....37.3%
FBGRX....29.6%

Over the past 2 years, total return:
QQQ......82.7%
FBGRX....94.0%

Over the past 1 year:
QQQ......31.1%
FBGRX....41.1%

YTD:
QQQ......18.1%
FBGRX....26.5%

 

[MichaelB]

I have seen very few of these tools that compare on a total return basis. Almost always it is only price return that is being compared. This is misleading at best. Can you provide links to any tools that do the comparison correctly?

StockCharts uses total return. The tool is fee based but the performance chart is free to all. StockCharts.com | Advanced Financial Charts & Technical Analysis Tools

 

[Mark1]

I love managed mutual funds and stock pickers, because without them my index fund investments wouldn't work. I say more power to the folks that can beat the indexes and thanks.

 

[Texas Proud]

Repeat after me: "It's total return."

So if a fund has a total return of 45.0% over 5 years and charges 0.70% expense ratio and another similar fund has a total return of 39.8% over the same 5 years and charges 0.50% expense ratio I choose to pay the higher expenses because the company has a better track record.

It's the same idea in sales. A salesperson that gets 4% commission turns in $300,000 in sales in a month. Another salesperson gets 5% commission and turns in $350,000 is sales in a month. And this has been consistent for years. Who do you hire?

The problem is that so far it has been proven that way over 90% of funds (I think it is closer to 98%) do NOT repeat their gains over time... so a great fund today will probably not be a great fund tomorrow...

But, a low cost index fund will always beat a high cost index fund...

Do not get me wrong, I do have managed funds... but all are low cost except for the leveraged few I have...

 

[Texas Proud]

"Index funds make me more money than most managed funds..."

Yes, that is the trick--finding the minority of managed funds that beat the index. They are out there and they are not hard to find. Almost all comparison charting tools has the benchmarks available as a comparison. It's fairly easy to pick a fund and then click on chart, then compare, then click on S&P index fund, then 3 year, then 5 year, then 10 year timeframes.

And which ones are those?

 

[Koolau]

Consider that the top holdings in FBGRX are most of the top stocks in the S&P500 by market cap. Therefore, it is extremely unlikely that FBGRX is going to lose out to the index fund over the next 10 years. If there is a year or two that it does not beat the index, you can be sure the index was not in positive territory that year.

Plus, the gains made in the previous 10 years by FBGRX over the index means that even with a down year it's still going to come out ahead vs. the index. Look at the prior 10 year return chart (above.) Since FBRGX is mostly the top 10 stocks in the S&P500 index how bad would it have to falter to lose its $16,000 lead it has over the index from the past 10 years. BTW, that $16,000 lead it has on the index is roughly 50% more return over 10 years.

Let's all check back in 10 years. Nice if you are right.

 

[motley]

a low cost index fund will always be a high cost index fund...

?