by Gene Dongieux, CIO, Mercer Advisors
For more on this topic, go to www.dentaleconomics.com and search using the following key words: net investment results, fund operating expenses, taxes, asset management expenses, after-tax return, hedge funds, Gene Dongieux
Q Why is my net investment result lower than my market performance?
A After you get your gross market return, expenses and taxes reduce your net earnings. The main categories are fund expenses, taxes, and asset management expenses.
Fund expense is the amount charged to manage an individual fund. The fee should vary according to the managerial skill required. For example, an S&P 500 (U.S. Large Growth) index fund should have very low fees because it simply tracks the index. An Emerging Markets Small Value fund should charge more because the manager monitors country economic and political stability, as well as searches out smaller value companies within those countries.
The table below shows the highest and lowest fund expenses for bonds, real estate investment trusts, and five stock asset classes ranked by risk and difficulty to manage. Note the difference between the highest and lowest fees in each asset class.