DanH wrote:Norbert Schlenker wrote:The description in the paper of their TSC calculation is ambiguous. I don't see how you can conclude they have double counted.
From
Mutual Fund Fees Around the World, pp 12-13 of the printed version (14-15 of the pdf):
Our measure of total shareholder charges (TSC) includes the expense ratio plus annualized loads. Because loads are paid when entering and exiting the fund, it is necessary to divide these loads over the investor's holding period. We assume a five-year holding period in our analysis. This also allows us to compute the back-end load, because these loads often decline as the holding period increases. To do this, we study, for each fund, the schedule of loads and obtain the load paid by an investor with a five-year holding period. Thus, we define total shareholder cost (TSC) as:
Total Shareholder Cost = TER + initial load/5 + back-end load at five years/5
Sorry, Dan, I've been away. While I agree that the formula allows both front and back loads to be added in when calculating cost, there is no evidence that the authors ever set both the second and third terms in the sum to non-zero values. Unless you can demonstrate that their data set includes Canadian funds where they did this, you can't claim - or even imagine - that they have double counted.
P.S. Suppose you were the author of the paper. How would you rewrite that formula to take into account that some funds are front loaded and others are back loaded?
Norbert Schlenker wrote:Whoa! Control for GST if you like because that is clearly outside the influence of Fido. But you can't just say, "Well, they pay 100bp for distribution in Canada vs. 0 in the US, so we'll just discount that difference." It's Fido's business decision to pay 100bp for distribution in Canada and not the US. You can't just wave it away, any more than you could wave away a business decision to buy all the portfolio managers Ferraris.
So, it's okay to wave away fees that U.S. investors pay to distributors? Wouldn't that also qualify as a "shareholder cost"? Bundled or unbundled, a cost is a cost. Based on the illustration they provided (re: U.S. and Canada comparison), it doesn't appear that they used any of the lower fee classes like I, F, or other low fee classes.
To take the Fido Japan example, anybody in the US can buy the no load (and low fee) version. How does one do that in Canada?
The Fidelity Advisor Japan C sold to U.S. investors includes a 1% annual 12b-1 (trailer) fee in its 2.26% MER. That's pretty much on par with Canadian A-series funds though the MERs are still a bit higher here.
Okay, so Fido sells what amounts to a DSC version of its Japan fund in the US and it has expenses comparable to the Canadian version. So, in the US, Fido has made a business decision to sell both a DSC version and a no-load version and the result in assets (figures from M* today) is
Fido Japan (no load) $1,765MM
Fido Japan (all loaded versions together, including the C) $159MM
i.e. the load versions have 8% of that market.
In Canada, Fido's business decision is that all versions, loaded or not, are available only through high cost distribution channels. Why shouldn't Fido Canada wear that black eye?