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First Cut Mutual Funds Mutual Funds

The Lowest-Cost Domestic Equity Mutual Funds

Low expense ratios provide a performance advantage by allowing more of shareholders’ money to stay invested and thereby grow.

by Charles Rotblut | September 2020

Charles Rotblut leads a class in AAII's new Essential Investing Video Course. Go to https://www.aaii.com/ves for more information and to subscribe.


How low of an expense ratio can an investor pay? The answer is lower than many may expect. This month’s Mutual Fund First Cut lists 25 domestic equity mutual funds with expense ratios of 0.15% or less. An expense ratio of 0.15% is equivalent to $1.50 on every $1,000 invested. The majority of the passing funds have expense ratios below 0.10%, with the two cheapest charging just 0.04% (or $0.40 for every $1,000 invested).

No minimum level of relative performance was required. Nonetheless, most of the passing funds have outperformed their category peers, as evident by the AAII grades (scale of A–F). The low expense ratios provide a performance advantage by allowing more of shareholders’ money to stay invested and thereby grow. Most of the passing funds are also passively managed.

Not surprisingly, Vanguard funds are most prominent among the results. Other fund providers are also represented, including Schwab and Northern Trust.

Due to purchase restrictions, funds were excluded that are labeled as “institutional” (with the exception of Vanguard Admiral class) or as “other” share class, which includes Fidelity’s zero expense funds. The full screen results with monthly updates, available to A+ Investor subscribers, include such funds and can be found at First Cut Screens in the Funds section of AAII.com. ▪

Discussion

EDWARD K from PA posted over 5 years ago:

After viewing the list of Lowest Expense Rations, I wonder why Fidelity's FZROX did not make the list. I feel I am missing something, but I do not know what. Zero expense fees seem too good to be true, to me.


CHARLES R from IL posted over 5 years ago:

Hi Edward, The Fidelity fund you mentioned, FZROX, is listed as having a share class of "Other." As stated in the article, these funds were excluded. My understanding is that it is not available to individual investors outside of Fidelity. To the extent that Fidelity is using it as a loss leader to attract new clients and keep existing ones, this would make sense. -Charles


EDWARD K from PA posted over 5 years ago:

Charles R, Thank you. I understand, now.


WISE C from MA posted over 5 years ago:

HI Charles, Hope you are well and staying safe. Is it possible for AAII to post an mutual fund update pdf in the original format below for each quarter-end? Best, -Wise- https://www.aaii.com/files/qmfu/completepdfs/Q42019_data.pdf


CHARLES R from IL posted over 5 years ago:

Hi Wise, In order for us to update the mutual fund data monthly and to expand the number of funds covered, we had to change how the data is processed internally. This meant changing the format of the Mutual Fund Quarterly Update. Though the format has changed, we now provide more data, cover more funds and make the updated data available sooner and more frequently. -Charles


V N from CA posted over 5 years ago:

I am unable to share this info and other important info from AAII with my husband although we’re in the same household. He emailed his difficulty accessing to Wayne before too. Any suggestions how I could include him?


STEPHEN R from CA posted over 5 years ago:

I don't understand why ETFs were not included in this list. There are lots of ETFs with low expense ratios.


Sneha J from IND posted over 5 years ago:

Hi! Of all the above it appears that "VIGAX" is the best.


CHARLES R from IL posted over 5 years ago:

Stephen, The accompanying ETF First Cut in this issue shows the ETFs with the lowest expense ratios. -Charles


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