No-Load Mutual Funds: An Analysis of Their Performance and Expense Ratios

Abstract

DURING THE PAST DECADE, the total net assets of the mutual fund members of the Investment Company Institute rose from $4 billion to nearly $24 billion. In this same period, the number of shareholders accounts increased by over 300% (1.4 million to 5.9 million), and the number of shareholders advanced to over three million individuals and institutions. This growth has occurred despite, or possibly because of, the fact that most funds levy a 7 to 9% sales or load charge on share purchases-a charge which the critics of mutual funds' find particularly annoying. Participating in this growth, along with the funds which levy a sales charge, were a number of investment companies-most of them formed since 1950-which have endeavored to operate while selling shares at net asset value or at approximately net asset value. Employing no salesmen and keeping advertising expenses to a minimum, these no-load or low-load funds2 (hereafter termed simply no-load funds) have evolved primarily as a sideline of investment counsel firms and brokerage houses, which may earn handsome management fees and/or commissions if their funds are successful. After studying about 250 funds, we found that at the end of June, 1963 there were thirty-eight investment companies in operation with net assets of $900 million, which we felt should be classified as no-load funds. (See Table I.) Twenty of these funds were in existence a decade earlier, and their total net assets at that time amounted to approximately $110 million. Thus, the net assets of no-load funds increased 700% in ten years, as contrasted with a 500% increase by the mutual fund members of the Investment Company Institute, most of which impose the customary sales charge. But, despite this relatively rapid growth, since the no-load funds started from a much smaller base, they still hold only about 4 % of the net assets of all mutual funds. The recent Wharton School study of the mutual fund industry (hereafter termed Wharton Report) made the following comment about no-load funds: I