Tuesday, September 18, 2007

401(k) Followup -- Cheaper International Funds

Last Saturday, a question under our 401(k) post asked:

Why don't we have cheaper (lower fee) funds like dfa or vanguard?...Apart from choice, which I understand is difficult to please all, my main complaint is higher expense ratios. eg ... our 401k International New Discovery (MIDAX) has a 1.63% annual fee [while] Vanguard's International Value index (VTRIX) is only 0.45%

Today I received our 401(k) Advisor's reply to my "How about a less expensive international stock fund?":

I have heard that there is a new International Index fund about to be offered by Mass Mutual. I will check its availability and let you know.

The 2 international funds you currently have are actually doing quite well.

The MFS fund is in the 14th percentile over 5 years in median ranking within its Morningstar peer group, and the Euro-Pacific is around the top third.

The MFS fund expenses of 1.55% (Morningstar average is 1.65%) has outperformed its index in the 5,3, & 1 year periods (ending 6/30/07) as follows: 5 Yr - 22.6% vs. 18.2%, 3 Yr - 25% vs. 22.8%, 1 Yr. - 31.2% vs. 27.53%.

The EuroPacific Fund has expenses of 1.10% (lowest currently available through Mass Mutual) and has pretty good performance also...

So there you have it. Straight frmo the mouth of the TAG investments guru.

Remember, almost all 401(k) Plans have higher expenses than the low cost mutual funds Vanguard and DFA in the investing arena. No getting around it, 401(k) Plans have higher structural costs.

The best a 401(k) Plan can do is compete with quality managed mutual funds beyond the Vanguard neighborhood. I wish it were otherwise, but that's the reality.


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