Sunday, June 17, 2007

WSJ looks at fund-of-funds fees, gets a shock -- well, not exactly

Don't you be the one getting a shock! Funds of funds are mutual funds which create a new product by using other funds in the same family as components. An innocuous example is Fidelity's Four-in-One Index Fund, FFNOX. Others are not innocuous. You pay one expense ratio for the fund of funds. But in some instances you could not easily tell what the underlying funds were charging you. It was deep, deep in the prospectus, in craftily worded statements, perhaps without a total, or it could even be changeable, if the fund of funds could reallocate its holdings among the underlying funds at different times. This is actually one area where the regulators have been working to good effect, as now it will be harder to obfuscate on just what the total expense ratio actually is.

I will suggest the Unknown Advisor's Law of Really Bad Disclosure: It is never an accident or oversight.

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