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Fund Spy

Putting Mutual Fund Fees in Context

Our new data point gives investors a quick review on how their funds' fees stack up.

Costs matter in selecting funds. But viewing a fund's fees without context is a fruitless exercise. Is a 1.00% expense ratio high or low? As my tax professor once quipped, many of the best questions can be answered with, "It depends." With fund fees, it depends on the asset class and the level of services provided. For example, a 1.00% fee is competitive among foreign small-cap stock funds purchased with the assistance of a broker, but the same fee is questionable for an institutional large-cap offering.

Morningstar's new Fee Level scoring gives investors the context needed to compare a fund's share class-level fees. Research shows that a fund's fee level is one of the better predictors of future relative performance. With the Morningstar Fee Level, users quickly gain insight into a fund's relative level of fees compared with funds that have both a similar asset-class focus and distribution characteristics. The Morningstar Fee Level is a good first step evaluating fees after an investor has determined the asset class and distribution channel he wishes to use.

How It Works
This new tool doesn't dictate an arbitrary fee analysis across all funds and categories, but rather highlights the relative fee level within classes in five gradations.

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