Low-Fee Stock Funds Outperform Peers

In a review of management fees charged by stock mutual funds, Standard & Poor’s found that those with lower-than-average expense ratios consistently outperformed their more expensive peers over time.

S&P;, a provider of independent investment research, maintains a database of more than 3,000 mutual fund portfolios. In its second annual study of performance and fees, it found that funds with lower expenses outperformed their more expensive counterparts in eight of nine investment styles.

For the second year in a row, the only place investors got an edge by paying more was in the mid-cap blend category, in which funds with higher expenses did better over five- and 10-year periods than those with lower expenses. S&P; researchers attributed this to the recent success of small-cap stocks, which were available to many mid-cap blend managers.

“The mid-cap blend is the ultimate non-style,” said Phil Edwards, managing director of S&P;’s investment services department. “They can reach up or reach down, and the ones that reached up into large caps suffered, and the ones that reached down into the small caps did well. In that one sector, the higher expenses won.”