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By Ryan Leggio | 10-28-2009 02:17 PM

Many Prices for the Same Index

Professors Coates and Birdthistle debate about whether there is reasonable justification for a wide dispersion of fees among funds tracking the S&P 500 Index.

Leggio: I thought we could take a moment and look at one subset of funds specifically to figure out if it demonstrates that the industry is competitive or not.

Both of you are looking at our latest data on index fund fees. As you note in your law review article, Professor Coates, the majority of assets of index funds are in the lowest cost providers, and the data bears that out. The Vanguard 500 Index Fund has somewhere around $85 billion in assets, and the two other low cost funds, Fidelity has $13 billion, and Schwab has $6 billion.

Professor Coates, my question centers around two other funds that you see in this data table. If we assume that the T. Rowe Price Equity Fund is run at at least a small profit, you have $2.3 billion going into a fund which charges almost twice as much in the Dreyfus Fund and the BlackRock Fund, which has $1.6 billion.

In a competitive marketplace, we normally wouldn't expect investors to tolerate paying upwards of two or three times as much for basically a commodity product. Doesn't this data really suggest that there really are some issues and some circumstances with a competitiveness in the industry?

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