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In this months commentary David identified QDSNX as having an e/r of 0.44%. The AQR site shows e/r as 3.3%, Vanguard 2.98%, and Fidelity 2.97%. However Mstar does show 0.44% - consequently I am confused as the fund would be a good option at 0.44% but 3.3% ?
I wouldn't buy a fund of funds anyway, but practically speaking, wouldn't the drag on on each constituent be the tacking on of the top level management fee? If you owned all of these funds separately you wouldn't add their ER's to each other, would you?
Often when a fund sponsor (e.g. AQR) offers a fund of fund, it does not charge a second level of management fees. No drag there, and if it eats the FoF's "other" fees, there may be no difference between the FoF and owning the underlying funds separately.
I say "may be" no difference because Vanguard's FoFs hold the more expensive Investor class shares of underlying funds. For example, VSCGX owns Vanguard Total Market Investor shares VTSMX (ER 0.14%) instead of Admiral Shares VTSAX ($3K min, ER 0.04%).
Acquired fund expenses are prorated when calculating the total acquired fund fees. QDSNX's acquired fund fees are so high because the underlying funds short securities, a costly strategy.
From the summary prospectus: "Acquired Fund Fees and Expenses include 1.79% related to fees and expenses associated with certain underlying funds' dividends on short sales and interest expense."
Acquired fund fees 2.86% (Magical accounting used to ignore these fees.)
TOTAL 3.30%
Ditto!
The FOFs I’ve used in the past (T Rowe Price / Cambrea) did not tack on a 12b-1 distribution fee or an additional management fee. That would be a turn-off. When I had money at Oppenheimer they did have a bunch of FOFs (multi-asset funds) that did add a management fee. They called it a “allocation fee” if I remember. Possibly those have migrated to Invesco? So, you were better off owning the components individually than as part of a FOF.
Comments
Top-level management fee 0%
12b-1 distribution 0.25%
Other 0.19%
Acquired fund fees 2.86%
TOTAL 3.30%
12b-1 distribution 0.25%. Other 0.19% = 0.44%
Acquired fund fees 2.86% (Magical accounting used to ignore these fees.)
TOTAL 3.30%
I say "may be" no difference because Vanguard's FoFs hold the more expensive Investor class shares of underlying funds. For example, VSCGX owns Vanguard Total Market Investor shares VTSMX (ER 0.14%) instead of Admiral Shares VTSAX ($3K min, ER 0.04%).
Acquired fund expenses are prorated when calculating the total acquired fund fees. QDSNX's acquired fund fees are so high because the underlying funds short securities, a costly strategy.
From the summary prospectus: "Acquired Fund Fees and Expenses include 1.79% related to fees and expenses associated with certain underlying funds' dividends on short sales and interest expense."
The FOFs I’ve used in the past (T Rowe Price / Cambrea) did not tack on a 12b-1 distribution fee or an additional management fee. That would be a turn-off. When I had money at Oppenheimer they did have a bunch of FOFs (multi-asset funds) that did add a management fee. They called it a “allocation fee” if I remember. Possibly those have migrated to Invesco? So, you were better off owning the components individually than as part of a FOF.