Some funds impose no front-end load, but charge higher operating expenses to make up for commissions paid to salespeople in the distribution channel. These fees are imposed annually cutting into the potential reward that an investor may realize as a result of his investment. Should the investor liquidate his holdings in the fund prior to a specified number of years, a contingent deferred sales charge may be imposed in lieu of the fund’s ability to recoup its commission expenses. Regardless of whether a fund’s fees are charged as front-end, back-end or annually, the higher they are, the more difficult it becomes to maintain average investment return in comparison to an appropriate index.
Annual operating expenses may range from below 0.1% for a passively managed index fund to over 5% for actively managed funds. The sad fact is that over 70% of actively managed funds fail to beat their relevant benchmark annually. Put another way, many fund managers fail to add enough additional value via their stock-picking and/or market timing expertise to cover the expenses that they impose. Our portfolios feature many passively managed funds from the Dimensional Fund Advisors family.