Research Finds Mutual Fund Fees Don’t Put the Squeeze on Investment Returns

By Staff Report

Oct. 14, 2009

Mutual fund fees have no effect on shareholder returns, according to research from D. Bruce Johnsen, a professor at George Mason University School of Law.

That’s because when a fund lowers its fee, the primary effect is to increase the size of the fund, Johnsen said Monday, October 12, in an interview with InvestmentNews, a sister publication of Workforce Management.

An increase in a fund’s size, however, leads to an increase in the fund’s overall costs, he said.

“This is not only because administrative costs are likely to increase at an increasing rate in total assets [owing in part to the cost of processing additional accounts] but also because large funds face higher transaction costs [from] trading portfolio securities, and these costs should also increase at an increasing rate in total assets,” Johnsen wrote in a paper—“Myths About Mutual Fund Fees: Economic Insights on Jones v. Harris”—which was published last month.

It’s something the U.S. Supreme Court should keep in mind next month when it is scheduled to debate the standards used to determine when a mutual fund’s fees become excessive, he said.

Not all, however, are in agreement with Johnsen’s theory.

It’s very well-proven that expenses do matter in terms of funds returns,” said Russel Kinnel, director of mutual fund research at Morningstar Inc.

Filed by David Hoffman of InvestmentNews, a sister publication of Workforce Management. To comment, e-mail

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