Starting today we are going to post our daily screencast to the Abnormal Returns Classic blog. First that gives our readers easy access to this new(ish) feature. Second it allows us to provide the links to the items we discuss in the screencast. For those interested we are using he Screenr functionality at Chart.ly which recommend highly.
In today’s screencast we discuss the irreducible math of mutual fund fees. A recent Morningstar study shows that mutual fund fees are a nearly infallible predictor of future fund performance. To quote Russel Kinnel at Morningstar:
Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile.
In short, high fees lead to lower returns. We discuss why this might be the case.
How expenses and stars predict success. (Morningstar)
How expenses and stars predict success – data table. (Morningstar)
Low fees outshine the star system. (WSJ)
Luck versus skill in the cross-section of mutual fund returns. (SSRN)