Date: Tue, 27 Dec 2005 11:37:30 -0600
From: Tad Borek 
Newsgroups: misc.invest.financial-plan
Subject: Re: Mutual Fund Expense Detail Question
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jIM wrote:
> "BTW, 0.2%, if that's what it is, is a very low annual expense level,
> especially for a fund-of-funds."
> 
> If the .2% is on top of the fees charged by each individual fund, then
> I would counter the .2% is EXPENSIVE.  Each fund already has a fee
> structure, then the fund of fund wrapper also has a fee?

Jim,

Good point, but for that Vanguard fund specifically that's the whole fee 
because there's nothing charged at the fund-of-fund level. The expense 
level quoted is a blended average of the underlying funds (I think it's 
actually 0.21%).

They have an unusual setup...the underlying funds reimburse the FOF for 
their reduced costs, and that reimbursement is enough to cover the 
administration of the FOF. This makes some sense - imagine say 
Vanguard's Total International Stock Index Fund - taking $30 million 
from one of the Vanguard FOFs, vs. taking $30M in $10,000 chunks from 
thousands of individual investors...clearly they save some money with 
the FOF, so it's not unfair to other Total-Int'l shareholders to 
reimburse the FOF to some extent.

You're right though that if it were 0.2% plus management fees for each 
fund you could end up owning a very expensive fund and thinking it's 
just 0.2%. That's a common criticism of funds-of-funds, "two layers of 
costs". But that criticism doesn't appear to apply to Vanguard's, at 
least under the current cost structure.

I'm not familiar w/T Rowe Price's FOFs but their reputation is for 
having a low-cost structure for their funds, generally.

-Tad