Fees Are Rising for These 4 Funds

Fees are one of the best predictors of future fund returns, so it makes sense to look for low-cost funds when you invest. But your work doesn’t end when you buy the fund. Sometimes fees change, most often because of rising or declining assets in the fund. It can also be because the fund has a performance fee, as is common with Fidelity’s stock funds.

For this exercise, I used the prospectus-adjusted expense ratio. We take the expense ratio and back out the costs of shorting and leverage to have a consistent measurement. That adjustment mainly affects bond and alternative funds.

I searched for funds with jumps in expense ratios that you might have missed. Depending on the fee level, you might want to stop adding new money or even sell the fund. The Morningstar Medalist Rating takes fees into account, but that is only at the time the fund was rated, and a fund’s prospectus expense ratio is only updated once a year. I left out those with performance-fee adjustments because they can come down quickly if performance ebbs.

Alger Capital Appreciation ACAAX had the largest spike not related to performance fees. This fund is pretty sensitive to assets. A couple of years ago, the fund peaked at $3.7 billion, but it’s now down to $1.2 billion, and its fees rose to 1.27% from 1.15%. We already had the fund rated Neutral, and rising fees won’t help that rating improve.

T. Rowe Price International Value Equity TRIGX saw fees bounce to 0.89% from 0.79% because assets fell to about $10 billion from a peak of $14 billion. That takes the fund’s fees to 3 basis points below the Morningstar Category median. The good news is we rate its People and Process Pillars at Above Average, and the overall rating is Silver. So, yes, the fund has lost a bit of its appeal, but it still has a lot going for it.

Technology stocks enjoyed a good 2023, so it might be surprising to see a tech fund here. But since T. Rowe Price Global Technology PRGTX got crushed with a 55.5% loss in 2022, it’s actually not surprising that the fund was hit with outflows that caused fees to spike. The Neutral-rated fund’s fees rose to 0.95% from 0.86%. Also not surprising is that this fund got a new manager, Dominic Rizzo, in December 2022. A mirror image positive return of 55.9% does not make you whole if you bought the fund in January 2022, but it is still a good sign and may well lead those outflows to turn into inflows.

Matthews Asia Dividend MAPIX has seen its fees go from slightly below the average of no-load peers to above average as its expense ratio rose to 1.10% from 1.02% because of declining assets. The fund’s longer-term returns don’t look very good compared with peers. We just rerated it, and higher fees plus the downgrades of two pillars took the Investor shares down to a Negative rating.

This article first appeared in the January 2024 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.