When Up Is a Downer
A look at six funds whose expenses have increased.
A rising market doesn't mean more assets and correspondingly lower fees for all mutual funds. Let's take a closer look at several funds whose price tags are rising at a time when they don't need any further headwinds.
American Funds Growth Fund of America (AGTHX)
Even the biggest actively managed equity fund in the United States can be buffeted by cash flows. This large-growth fund enjoyed a strong run of relative performance from the 2000–02 bear market until late in the mid-2000s equity rally, and its asset base peaked at roughly $200 billion. Returns have since cooled--its trailing three- and five-year returns are mediocre--and investors have pulled out a net $80 billion over the past three years through July 2013. As a result, assets are down to a still-massive $126 billion. The expense ratio for the fund's A shares increased to 0.71% in 2013 from 0.62% in 2008, although that share class still earns a Morningstar Fee Level of Low.
Calamos Growth (CVGRX)
This fund also has seen hot money flow out and costs rise as relative returns have waned. It hit $20 billion in assets in early 2006 as investors poured money in following stellar returns. But Calamos Growth has since seen seven consecutive years of net outflows (more than $1 billion each year, and more than $4 billion in 2007) as the fund has largely struggled--it landed in the bottom decile of its category in four of those years, and it is there again in 2013 for the year to date through Aug. 9, 2013. The A shares' expense ratio has consequently risen to 1.29% in 2013 from 1.20% in 2007, which means that it earns an Above Average fee level despite a still-substantial $4.4 billion asset base.
Leuthold Core Investment (LCORX), Leuthold Asset Allocation (LAALX)
These funds have struggled in recent years because of poor stock-picking and mistimed asset-allocation calls. Core Investment has trailed the vast majority of its competitors over three and five years because of stock selection, although its longer-term record is still strong. Asset Allocation has struggled mightily in three of the past four years. Investors have withdrawn a net $1.15 billion from Asset Allocation and $920 million from Core Investment over the past three years, and the funds' price tags have risen: The expense ratio for Core's retail shares increased to 1.22% in the January 2013 prospectus from 1.11% in 2008, and Asset Allocation's retail shares went to 1.42% from 1.23% over the same period. (The latter fund's institutional shares increased 11 basis points in just one year.) Asset Allocation now earns a High fee level.
Litman Gregory Masters International (MSILX),
Litman Gregory Masters Smaller Companies (MSSFX)
Both of these funds just saw their expense ratios rise. International's institutional shares increased to 1.15% from 1.11% the previous year and from 1.03% in 2007. The fund isn't much smaller now than it was in 2007, so the cost difference is odd. Investors pulled a net $272 million from the fund in 2012 after a poor 2011, and another $102 million in the first seven months of 2013. Its fee level is Above Average. The price tag for Smaller Companies' institutional shares made a big jump between 2007 and 2009 as its asset base shrank dramatically because of investment losses and redemptions. It then dropped a bit, but it has since edged up to 1.49% in its June 2013 prospectus (compared with 1.30% in 2007). The fund's fee level is High even among small-cap funds, which tend to be more expensive.
Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.