American University
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Class consciousness pays : Characteristics of index funds with diverse expense ratios

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posted on 2023-08-05, 10:54 authored by H BakerH Baker, John A. Haslem, David M. Smith

This paper investigates the characteristics of 189 retail index mutual funds that track eight primary benchmarks across diverse expense ratio classes. These performance measures and attributes are the Sharpe ratio, Jensen’s alpha, annualized total return, Morningstar rating, portfolio turnover, load and 12b-1 fees, fund size, age, and manager tenure. In general, our results support the notion that retail index funds with low expense ratios outperform those with excessive expense ratios. In addition, expense ratios tend to decrease as turnover, loads, and 12b-1 fees decline and as fund size and age increase. Experienced managers do not necessarily run these low-cost funds. Instead, higher-cost funds have managers with a longer tenure at the fund.



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