Trading costs at U.S. mutual funds are, on average, 43.4% of reported expense ratios, according to a study from Zero Alpha Group. That translates into $17.3 billion in trading costs not listed in mutual fund expense ratios, according to the study, which examined trading costs of more than 5,000 equity funds for 2002.
The study found that 46% of all small-cap funds, 21% of midcap funds and 7% of large-cap funds have "all-in" trading costs that are higher than the reported annual expenses. The study broke growth funds into three categories: large-cap growth, with trading costs averaging 43.1% of stated expense ratios; midcap growth, 86%; and small-cap growth, 123.2%.
Trading expenses for value funds are lower than those for growth funds, the study found. In addition, the study determined that trading costs of active funds are more than seven times as high as in index funds; the total trading costs of active funds averaged 0.48% a year, compared with 0.064% a year for index funds.