Management fees paid to external investment managers can be one of the most detrimental impacts on investment outcomes. Fortunately, this cost is also one of the most avoidable as well. The most promising way for an investor to increase the potential return on their investments is to replace any high-cost strategy with a lower-cost equivalent.
According to Fidelity, the average equity mutual fund management fee is about 1.40%[1]. A fee of that magnitude would meaningfully degrade the investment outcome over long periods. A cost of 1.40% per year could lead to a 20% or more negative impact every decade. Transaction costs are a further blow to the return-generating potential of mutual funds, which rarely manage to outperform relevant investment benchmarks. For instance, according to a study by Standard and Poors, fewer than 7% of the funds managing large-capitalization US equities achieved a higher return than the S&P 500 in the past ten years, once fees are considered, and fewer than 5% outperformed the index over 20 years[2]. More than all of the value-added goes to the fund manager, while clients suffer worse returns than would have been available from a low-cost index strategy.
All Atlas Capital Advisors, our direct equity and municipal bond strategies are offered at no additional cost to the client. Any other client positions will be low-cost ETFs, which tend to have lower management fees than mutual funds. The low cost of the Atlas implementation leaves clients with more money in their pockets.
[1] “ETF’s vs. mutual funds: Cost comparison, ETF Versus Mutual Fund Fees – Fidelity
[2] SPIVA US Scorecard, SPIVA U.S. Mid-Year 2021 Scorecard (spglobal.com)
