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Morningstar's Jason Kephart: A Workaround for High Alternative Fund Fees

Fund Spy: A Workaround for High Alternative Fund Fees
09-24-2015 | This simple trick can help you halve some alternative fund fees.

http://news.morningstar.com/articlenet/article.aspx?id=715562

"Long-short equity funds can add useful diversification to an equity portfolio, but the strategy tends to come with a hefty price tag. The average long-short equity fund charges a whopping 1.85% expense ratio. Fees are, and have always been, the enemy of long-term returns, so it’s hard to blame anyone who considers a nearly 2% price tag a nonstarter. But with a little creativity, an investor can get a similar return profile from equity market-neutral funds at a much more appetizing price....

...The good news is that a skilled manager is skilled regardless of how much beta, or systematic risk, the strategy takes on. With the increased availability of exchange-traded funds today, investors can easily and cheaply buy beta to layer on top of a lower-exposure, alpha-generating strategy and, in the process, lower the overall fees. Let’s take a look at three different examples of how this would work."

Examples:
VMNIX + VOO  (WAvg E.R.:  10 bps)
BDMIX + URTH (WAvg E.R.: 86 bps)
GONIX + VOO (WAvg E.R.: 109 bps)
See article and comments for details.

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