Friday, January 22, 1999

The Wisdom of Loads

by AriL0309

The New England Funds, parent company of the Oakmark and Loomis Sales mutual funds, are improving these funds by adding loads of 4.75% and 5.75%. And the Wise will tell you this is good for you, the shareholder! (I learned of this in Jerry Morgan's "Mutual Funds" column, which appeared a few days ago in The Washington Post and other newspapers.)

Why is this good for you? Bruce Speca, president of New England Funds, is quoted as saying, "About 60% of investors use advisors or full service brokers, and they can't get these no-load funds through them unless the brokerage does wrap fees." Morgan's column states that there are "a lot of investors who use advisors and brokers because they lack knowledge and are afraid of investing on their own, are too busy, or want someone else to have the responsibility" of choosing investments. Financial planners usually charge about 1% of assets to manage your money.

Too bad I couldn't have taken advantage of this system earlier. Let's say that on January 1, 1996, I had given $10,000 to my friendly Wise financial planner to manage. If my goal was "Income and preservation of growth and capital," he might have invested the money for me in the Oakmark Growth and Income Fund (OAKBX) (returns are conveniently shown with Morgan's column). Under the new system, I would have paid a 5.75% load, so I'd be down to $9425. The fund gained 15.29% that year, so by year end I'd have $10,866. $109 of that would go to my financial planner, so I'd start 1997 with $10,757. In 1997 the fund gained 26.56%, so I'd start 1998 with $13,478, after giving my financial planner another $136. The same process in 1998 (12.39% return) gives me a total of $14,996, with another $151 for the financial planner. Wow, that's almost a 50% return! Of course, without the financial planner, I could have bought the fund directly from Oakmark, at net asset value, and I'd have $16,398. But is $1402 too much to pay for some really nice hand-holding?

Let's see how I would have done with the Vanguard Index 500. No load, so I start with $10,000. 1996 gives me a 22.86 return, or $12,286. 1997 brings me 33.21%, so I'd end the year at $16,366. And in 1998, my 28.62% return would give me a total of $21,050. A 110% return, but no advisor to hold my hand. I won't even mention how the Foolish Four, the Keystone Approach, the Rule Makers and Rule Breakers would have done. To be fair, Oakmark does have some fine portfolio managers, such as Robert Sanborn and Bill Nygren, with good track records and a consistent, value-oriented approach. But to their parent company, I say, don't do me any favors. If it is Wise to pay an extra 5.75% for an underperforming fund I could have gotten for no load, call me a Fool.

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